Student loans in the United States

Student loans are a type of financial aid available to Americans that are designed to facilitate students’ access to higher education. Seventy percent of recent graduates from higher education in 2018 reported using loans to pay for all or part of their costs. In contrast to other forms of financial aid like grants and scholarships, which are rarely repaid, student loans, with some significant exceptions, must be repaid. Bankruptcy is one way to discharge student loans, but it’s not easy.

Since 2006, student loan debt has increased rapidly, reaching a total of $1.73 trillion by July 2021. After graduating in 2019, borrowers who took out a bachelor’s degree owing roughly $30,000. Graduate school accounts for about half of all student debt, usually in substantially larger sums. Loan amounts differ significantly depending on the race, age, social status, type of institution, and degree sought. For US households as of 2017, the largest non-mortgage liability was school debt.Studies show that rising borrowing limitations are the primary cause of tuition rises.

The for-profit college industry has a disproportionately high rate of student loan defaults. In 2010, roughly 10% of college students were enrolled in for-profit institutions; nonetheless, for-profit students accounted for nearly 40% of all federal student loan defaults. University of Phoenix, Walden University, Nova Southeastern University, Capella University, and Strayer University are the universities with the most indebted students. Nova Southeastern is the only non-profit organization among them. 52 percent of students at for-profit universities defaulted on their student loans after 12 years, according to data from the National Center for Education Statistics in 2018.

Borrowers who drop out of school have a default rate that is three times higher than that of those who finish.1 According to a Brookings Institution report from 2023, wealthy borrowers typically “…benefit affluent borrowers the most…” when the government suspends student loan repayment, largely because they have the highest student loan amounts.


Under the National Defense Education Act (NDEA), federal student loans were initially made available in 1958. Only specific student groups, like those pursuing science, engineering, or education, had access to them. In reaction to the Soviet Union’s Sputnik satellite launch, the program was created.It addressed the widely held belief that scientific and technological advancements have lagged behind the United States. The Higher Education Act of 1965 made student loans more widely available in the 1960s in an effort to promote greater equality of opportunity and social mobility.

The first student loan covered by federal insurance was made in 1967 by the publicly traded Bank of North Dakota.

Founded in 1973, the Student lending Marketing Association (Sallie Mae) was the first significant government lending program in the United States.

  • direct funding and origination of loans from the Department of Education (DOE)
  • Private investors generated and funded loans insured by the government.

The area of school financing with the quickest rate of growth was direct-to-consumer private loans. Legislators were looking into the “percentage of undergraduates obtaining private loans from 2003–04 to 2007–08 rose from 5 percent to 14 percent” because the school was not certified.

The Higher Education Opportunity Act of 2008 resulted in significant modifications to the regulations governing disability discharge. The rules become operative on July 1, 2010. The amount of debt Americans owed on their student loans was greater than their credit card debt as of June 2010. At that point, there was at least $830 billion in student loan debt, of which about 80% came from federal loans and 20% from private ones. The total amount of outstanding student loans that were held and securitized exceeded $1.3 trillion by the end of 2015.

The Student Aid and Fiscal Responsibility Act of 2010 abolished guaranteed loans and substituted direct loans. The Obama administration asserted that while guaranteed loans did not lower student prices, they did benefit private corporations at government expense.

Beginning July 1, 2010, the Federal Family Education Loan Program (FFELP) was no longer open to private sector financing due to the Health Care and Education Reconciliation Act of 2010 (HCERA). Instead, all Stafford, PLUS, and consolidation loans, both subsidized and unsubsidized, fall under the Federal Direct Loan Program.

Beginning on July 1, 2013, borrowers that the Social Security Administration found to be disabled would be eligible for loan discharge as long as the agency put them on a five-to seven-year review cycle. The Tax Cuts and Jobs Act of 2017 stipulated that debt discharged as a result of the borrower’s death or disability was no longer considered taxable income as of January 1, 2018. (The expiration date of this provision is December 31, 2025.)[27]

LendKey, SoFi (Social Finance, Inc.), and CommonBond started providing student loans and refinancing utilizing an alumni-funded approach at cheaper rates than traditional lenders in an attempt to reform the student loan market. A 2016 analysis by the online student loan marketplace Credible estimated that approximately 8 million students would be eligible for refinancing.

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