America's federal student-loan portfolio has grown to $1.8trn; the average borrower balance sits at $40,000, according to the Education Data Initiative. Student lending was once profitable for the federal government; it now loses 25 cents on every dollar lent. Officials expect the portfolio to cost around $450bn over the nine years to 2034.
In the 20 years before the arrival of covid-19, student loans were among the fastest-growing forms of household borrowing, swelling from 10% of non-mortgage debt in 2003 to 33% by 2020. By 2010 they had overtaken credit cards and car loans as the largest single slice of household liabilities. By 2012 they led in delinquencies, too.
During the pandemic, relief came through several pieces of legislation. Some $189bn in student debt was forgiven and more than $260bn of payments waived. The last pandemic-era forbearance ended in September 2023; defaults began to appear on credit records in the first quarter of 2025. According to TransUnion, 21% of federal student-loan borrowers are in default, the most ever, up from 12% in February 2020. On May 5th 2025 Donald Trump instructed the Treasury to resume collections from borrowers in default.
A shift from fixed repayment schedules to income-driven plans has been a key driver of costs. First introduced in 2009, such plans set payments as a share of wages and now account for 56% of outstanding federal student-loan balances. Balances are forgiven after 20 or 25 years regardless of repayment progress, compared with a 40-year write-off period in England. Payments can be as little as 5% of discretionary income, lowered by the Biden administration in lieu of outright debt forgiveness. The Congressional Budget Office found the government earns a return on most fixed-repayment loans but loses money on every dollar lent with income-driven options. Australia and England avoid adverse selection by mandating a single repayment structure.
The Public Service Loan Forgiveness programme incentivises graduates to work for non-profits, often at below-market salaries, by forgiving their remaining student debt after ten years of qualifying payments. In September 2025 the Department of Education proposed a rule denying forgiveness to graduates who work for non-profits deemed to have a "substantial illegal purpose"—a definition broad enough to cover services for undocumented immigrants, transgender health care and pipeline protests.
The One Big Beautiful Bill Act, working its way through Congress in mid-2025, proposes streamlining the system so that students choose between two options: fixed or income-driven. Both the House and Senate versions include penalties for colleges that produce graduates with low earnings relative to their debts, and take steps towards curbing runaway balances for graduate students, who represent a fifth of borrowers but account for half of outstanding debt.
I never deny, I never contradict. I sometimes forget.