Getting Ahead Of the Student Loan Crisis

On Monday July 1st student loan rates doubled. The average borrower will see an increase of $2,600 in debt servicing costs while those who take out the maximum will have to pay $4,000 more than otherwise. Unfortunately, this is only one of the many problems that have turned student loans into a national crisis.

The Impact of High Student Loan Debt
The national student loan debt burden topped $1 trillion earlier this year making it the second highest form of household debt after mortgages. When all other forms of debt ( mortgages, credit cards, and auto loans) plummeted in the wake of the Great Recession, student loan debt soared.


While the cumulative numbers look terrible, evidence from how it is affecting the lives of millions of Americans paints a far broader picture of the impact of high student loan debt.

  • While 1 in 5, or 38 million, Americans have student loan debt, this number has soared recently as 2 out of every 3 college seniors who graduated in 2011 possess student loan debt.
  • Over half of those with student loans (57%) are worried they may be unable to repay it.
  • Between 2007 and 2010, the average student loan balance climbed almost 15%.
  • The default rate on student debt for those under 30 years old is 35%.
  • The percentage of Americans aged 25-34 living with their parents increased by 27% from 2007 to 2011.
  • First time homebuyers are a declining slice of total home sales (30% down from 40%).
  • Income is being redirected from saving for retirement and towards debt servicing during the critical early years of employment.

Policies to Reign in this Crisis
Fortunately, there are policy recommendations that can help current, future, and past borrowers manage their student loans. Advocates argue that student loan borrowers should be able to:

  • Borrow at lower rates to take advantage of times of low interest rates
  • Restructure private student debt – half of all private student debt is held in asset-backed securities which does not legally allow restructuring
  • Restructure payment plans for private student loans to be based on the borrower’s income
  • Receive debt forgiveness after 25 years of consistent payments

Unfortunately so far Congress has failed to pass the necessary structural changes that would give student loan borrowers these options.

To learn about other policies that can make higher education more affordable, visit IABG’s campaign to create a Universal Children’s Savings Account program (CSA) in Illinois.

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