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What Is the Student Debt Crisis?

Explaining the Student Debt Crisis
Melanie Lockert
Melanie LockertUpdated January 15, 2023
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Over the past few decades, the cost of higher education has jumped to levels not seen before. Rising tuition costs have left families in a bind, unable to pay for school out of pocket. The solution? Taking out student loans. Now these same borrowers are dealing with inflation, wage stagnation, and potentially high loan balances — a recipe for a student debt crisis.According to the Federal Reserve Bank of St. Louis, outstanding student loan debt, as of the second quarter of 2022, stands at $1.748 trillion dollars among over 43 million borrowers. How did we get here, though? Here’s the student loan crisis, explained. 

Student Debt Crisis, Explained in 100 Words

Student loan debt single-handedly contributes the most to average household debt, with more than 43 million Americans borrowing a total of nearly $1.75 trillion dollars. Over more than four decades, the cost of college has become nearly three times as costly. The average borrower getting an undergraduate degree graduates with about $25,000 in student loan debt. According to, as of 2020, median earnings for full-time workers were between $50k and $61k. Women and people of color take on more of the student loan burden but earn less, making it tough to repay. 

History of the Student Debt Crisis

The student loan debt crisis didn’t happen overnight — and it won’t go away overnight, either. Here are some pivotal moments in history that have contributed to the student debt crisis: 
  • As part of the National Defense Education Act and a desire for an educated society, student loans were created
  • The Higher Education Act of 1965 expanded student loan options for borrowers
  • Sallie Mae was created in 1972, which used to be government-backed but went private in 2004
  • The Great Recession happened from 2007-2009, leaving millions unemployed and going back to school 
  • After the recession, funding for higher education was slashed in many states, putting the burden on the borrower 
  • Occupy Wall Street occurred in 2011, which shed light on the rising education costs and student loan crisis 
  • As of March 2020, student loan borrowers got some relief with payments put on hold during the Coronavirus pandemic 
These historical events and policy decisions, as well as wage stagnation and inflation, have made it difficult for people to make ends meet and pay back their student loan debt. Just how long does it take to pay off student loans? For some, it may take up to 20 years. Let’s take a closer look at some of the reasons for the student debt crisis. 

Decreased State Funding

Though tuition costs have increased, part of why that cost is now being felt by borrowers more is because of slashes in state funding. After the Great Recession, many states took an ax to their state funding for public colleges. According to the Center on Budget and Policy Priorities, funding dropped over $6 billion dollars by 2018 when compared to pre-recession levels. Between the decade of 2008 and 2018, 41 states had less overall spending for each student. Less funding available means more of those costs fall onto the student. 

Access to Student Loans 

While there are loan limits for undergraduate degrees, PLUS loans are designed to cover the cost of attendance. Private loans help cover costs if federal loans aren’t enough. Given this increased borrowing power, many schools have increased their tuition costs. Unfortunately, household wages haven’t kept up with this increase. So the result is a nation of student loan borrowers feeling the pinch of repaying student loan debt with wages that aren’t keeping up.

For-Profit Schools

Another issue that contributes to the student loan debt crisis is for-profit schools. After the Great Recession, enrollment at for-profit schools hit its apex at 9.6%, compared to 2.9% in 2008, according to the paper “Student debt and default: The role of for-profit colleges” published in the Journal of Financial Economics. As of 2018, 5% of students attended for-profit colleges.  Over the past few years, many for-profit schools have been involved in lawsuits with students claiming these schools made fraudulent claims. For-profit schools tend to have higher tuition rates, lower graduation rates, and higher default rates. 

Cost of College Over Time

In the beginning of 2012, outstanding federal loans were at $948.2 billion. As of Q2 2022, outstanding federal loans are now at a staggering $1.6 trillion. These student debt crisis facts illustrate just how much has changed over time. A big culprit in the student debt crisis is simply the price of tuition. Attending college has become more expensive and Pell Grants have been cut over the years, pushing more borrowers toward student loans. In 1980 the public four year cost of college was about $8,000. As of 2020-2021, that cost hovers between $22,000 and $24,000. In other words, it’s close to three times more expensive to obtain a degree from a public college. Private colleges have even steeper costs for borrowers. 

College Graduate Median Earning Over Time

It’s not just that tuition costs have grown at an alarming rate. Part of the student loan debt crisis is that earnings haven’t kept up — making paying off a student loan difficult. The median household income from 2016 to 2020 was $64,994, according to Census data. According to Statista, the median income was:
  • $54,569 in 2012
  • $56,479 in 2013
  • $55,613 in 2014 
  • $58,476 in 2015
Over the past decade, median income hasn’t budged much compared to inflation. That means the dollars we do have are worth less and borrowers are paying more. 

Effects of the Student Debt Crisis

The effects of the student loan crisis are having a profound impact on both the economy and borrowers’ financial and emotional well-being, as well as their life choices. Having so much in student loan debt can mean less discretionary income to spend on leisure, vacation, and hobbies.

Economic Effects

As millions of borrowers use their extra money to make monthly payments on their student loan debt, all the capital that could go into new investments or small business doesn’t enter the local economy.On top of that, many borrowers may not be able to save fully for retirement or have enough emergency savings. This could mean relying on credit to bridge gaps or tap into other social services for assistance. 

Social Effects

Student loan borrowers are not on traditional paths of hitting certain life milestones. In fact, because of the burden of debt, some borrowers are delaying marriage or kids—or opting out altogether. Additionally, student loans may lead to increased rates of depression, anxiety, and even suicidal ideation. The impact student debt has on borrowers can affect every aspect of their life — from the career they choose, to crossing off big life milestones or not, and their mental and physical health. 

Student Debt Relief 

On August 24, 2022, the White House announced loan cancellation of up to $20,000 for borrowers with Pell Grants and up to $10,000 for non-Pell Grant borrowers. To qualify, individuals must meet income eligibility requirements with individuals earning less than $125,000 and households $250,000 or less. This plan is now being challenged in the courts.Student loan forgiveness may also be an option under Income-Driven-Repayment (IDR) or Public Service Loan Forgiveness (PSLF). 

The Takeaway

The student loan crisis is a growing problem for families and students. While there’s some student loan relief on the way, college costs have outpaced wages. Borrowers are feeling stuck and trapped with student debt, with the impact of loans affecting nearly every aspect of life. One option is to save money through refinancing, but you miss out on federal forgiveness benefits for the amount that is refinanced.. Check out refinancing a student loan pros and cons to see if it would make sense for you so you could save money on interest. 

3 Student Loan Refi Tips

  1. Once the pandemic-related pause on federal student loan payments ends, going back to making payments may be hard on budgets. One solution is to refinance to a lower interest rate, longer loan term, or both, depending on your situation. (The tradeoff is that you’ll be forfeiting federal benefits such as repayment programs.) Find and compare your student loan refinance options.
  2. Paying extra each month on your student loan can reduce the interest you pay and so lower your total loan cost over time. (The law prohibits prepayment penalties on federal or private student loans.)
  3. If you teach full-time for five complete and consecutive academic years in a low-income school, you may be eligible for federal student loan forgiveness.

Frequently Asked Questions

What is the student debt crisis?
What are the effects of the student debt crisis?
Why exactly is there so much student debt?
Photo credit: iStock/designer491

About the Author

Melanie Lockert

Melanie Lockert

Melanie Lockert is the founder of the blog and author of the book, Dear Debt. Through her blog, she chronicled her journey out of $81,000 in student loan debt. Her work has appeared on Business Insider, VICE, Allure, and more.
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