Introduction

• Jurisdiction: United States

Introduction

Education — from short-term vocational programs to four-year universities and graduate school — is the acquisition of intellectual skills that help enable new generations to become productive and to undertake the opportunities and obligations that society provides. In the U.S., education is a highly expensive endeavor, one that few young people can afford when the cost is incurred, so many students borrow to pay for it. The total outstanding education loan debt in the U.S. exceeds $1.3 trillion — more than car loans, credit card debt or any other single consumer indebtedness with the exception of home mortgages. For many years, student loan borrowing grew at an exponential rate. In 1994, students took out approximately $36 billion in loans to fund their educations. By contrast, in 2011, the highest borrowing year ever, students incurred a whopping $124 billion in education debt. Since then, borrowing rates have gradually declined, dropping to $106 billion in 2015.¹

Decreased rates of borrowing by no means guarantees that student loan debt is a problem of the past. Indeed, it may only be a temporary lull. The Congressional Budget Office projects that the federal government will lend an additional $1.2 trillion for education loans between FY 2016 and 2026.² Some experts warn of an impending student loan bubble similar to the 2008 real estate mortgage crisis.³ In addition, sharply increasing levels of education debt are preventing a growing number of people from participating in the U.S. credit economy, and this is creating a long-term drag on future economic growth.⁴ The prospect of perpetual indebtedness can also result in social problems such as depression and other emotional and physical ailments, as well as breakdowns in personal and family relations.⁵

Commensurate with the rise in education borrowing is the rise in the number of student borrowers who are unable to repay their loans. Fewer than half of current loans are in repayment according to their original terms, while up to 41% (estimates vary) are delinquent or in default. For students facing hardship in repaying federal loans, there may be some relief through consolidation or forgiveness programs, but these can take from 10 to 25 years to complete. Interest on the unpaid amount continues to accrue during that time, and the debt remains on the individual's credit report until forgiven. And for most borrowers, when the forgiveness period is completed, the amounts that are forgiven may be taxable as income. While loan...