Unsustainable Status Quo
In 2016-17, undergraduate and graduate students received a total of $240 billion of student aid in the form of grants from all sources, Federal Work-Study, federal loans, federal tax credits and deductions, and private loans. Student loans, federal and private, constituted approximately $120 billion. Approximately 10 million students who attend college receive student loans. The average bachelor degree student graduates with approximately $30,000 of student loan debt.
Currently there are $1.5 trillion of loans in the federal student loan portfolio. Student debt is now the second highest source of household debt – behind mortgage debt – reaching $1.5 trillion in 2018, up six fold from $250 billion only 15 years ago. Without viable alternatives to existing student loan options, millions of students face harsh consequences and long-term economic growth could be negatively impacted.
The portfolio represents approximately 44 million borrowers. A substantial portion of these federal loans are in default, late stage delinquency or incur negative amortization ($400 to $500 billion). In addition, there are approximately $120 billion in private student loans. Federal and private student loans are the only consumer loans not dischargeable in bankruptcy. Even retirees have student debt that increasingly results in garnished social security payments.
These facts highlight the scope of the student debt burden on families, the economy and the taxpayer. It will worsen as the cost of college continues to increase. The rapid growth of student debt and its consequences are fueling the search for alternatives such as income share agreements.