Welcome! The student loan crisis in the United States has grown alarmingly, affecting millions of individuals and echoing the broader issues surrounding economic inequity. This article explores the intricacies of student loans, their impact on borrowers, and the political landscape that shapes these challenges.
Yves here. Student loans serve as a background issue in our society, akin to diminishing life expectancies, often highlighted yet frequently overshadowed by an overwhelming influx of information. Much like how debt-driven housing has exacerbated home affordability, student loans have significantly driven up college costs while fostering a burdensome administrative system. Additionally, the political landscape complicates matters, as a significant number of university employees lean Democratic, further fueling right-wing disdain for higher education based on both ideological perspectives and political motivations.
Another critical but often overlooked concern is that students lacking financial guidance are frequently misled regarding their potential earning capacities. This misinformation leads many to take on unmanageable debt levels, not accounting for the risks associated with job loss or the serious implications of missed payments.
By Alan Michael Collinge, founder of StudentLoanJustice.org, the first grassroots organization in the United States advocating for student loan borrowers. Since the organization’s inception in 2005, Collinge has appeared on “60 Minutes” and in numerous publications, such as Fortune, the San Francisco Chronicle, and the New York Times. Before launching StudentLoanJustice.Org, Collinge was an associate scientist at Caltech and a regional project director for a federal loan program. This article is produced for the Observatory by the Independent Media Institute.
With the student debt crisis spiraling out of control, some media outlets have labeled it a “national emergency.” Outpacing the growth of most consumer debts, the number of Americans burdened with federal student loans surged from 21 million in 2000 to 45 million by 2020. Meanwhile, the debt amount skyrocketed from $387 billion to an astonishing $1.8 trillion, as reported by Brookings in a 2024 article.
A worrying demographic shift has emerged, showing that older borrowers are now outnumbering their younger counterparts, despite having originally taken on smaller loans. Analyzing the second-quarter statistics from the Department of Education for 2024 reveals that there are now 2.1 million more individuals over 35 (23.7 million) holding student loans compared to those under 35 (21.6 million). The older group’s average debt stands at $43,680, compared to $27,250 for younger borrowers.
Approximately 5.3 million borrowers have reportedly defaulted on their federal student loans, as indicated by an April 2025 article from PBS.
Ensuring access to education is vital for the economic prosperity of any nation, leading to significant returns in terms of wages and GDP. “When more people hold high-value credentials, workforce participation rises, financial security becomes reachable for more families, and economic growth speeds up. These benefits require concerted action. Federal and state governments must boost education funding, tailor learning to marketplace needs, and reaffirm education as a public good,” states an opinion piece in The 74.
In contrast to the U.S., several other nations actively invest in education as a pillar of economic growth. If America fails to address its policy shortcomings—leading to “diminishing confidence in the value of a degree”—the repercussions could be dire.
The Vicious Cycle That Has Made Education Inaccessible
Originally intended to broaden educational access for low-income students, student loans have transformed into a profit-making vehicle for politicians and corporations, keeping borrowers trapped in a cycle of debt.
“A generation ago, Congress privatized a student loan program designed to enhance access to higher education. Instead, lawmakers created a profit center for Wall Street and a financing system that perpetuates inequality. Step by step, Congress has enacted laws to make student debt the most onerous form of debt for Americans while benefiting banks and debt collectors,” notes ABC15 Arizona.
The consequences of this financial strain are severe and worsening. For instance, the Nelson family from Broken Arrow, Oklahoma, filed for bankruptcy in 2020, largely attributable to their unpaid student loans. Tragically, the family, including six children, was found dead in 2022 in what was ruled a “murder-suicide,” primarily driven by their financial distress.
The Ballooning Student Loan Debt
In many states, particularly in the South, student debt now surpasses state budgets, as indicated by my analysis of first-quarter 2025 data. This mounting debt is the outcome of inflated borrowing and rising education costs. When evaluated against any rational metric, the lending system is a catastrophic failure.
Sadly, the political dynamics in Congress and the White House have only solidified over the years against student loan borrowers, perpetuating this flawed and hazardous loan system. Understanding how we reached this juncture, along with recognizing the current political climate, is crucial for finding a way out of this predicament.
How Sallie Mae Monopolized the Lending Industry
The debtor’s revolt in Western Massachusetts during the 1780s, known as “Shays’ Rebellion,” prompted the drafting and ratification of the U.S. Constitution, which established uniform bankruptcy laws prior to other powers like raising armies or coining currency.
When President Lyndon Johnson took office, he signed the Higher Education Act (HEA) into law in 1965. The HEA “established guaranteed loan programs, indicating that loans made by private companies to students were backed by the federal government in case of default,” reports Boston University. During the signing ceremony, Johnson proclaimed these loans would be “interest-free,” highlighting his intention to keep education accessible for those determined to pursue it.
A hybrid public-private entity, the Student Loan Marketing Association, or Sallie Mae, was established in 1972 to act as a repurchaser and guarantor for federal loans from private banks. This company, equipped with profit-driven motives, also received full backing from the U.S. Treasury, effectively creating a monopoly over the emerging student loan industry, thus becoming a dominant force alongside Congress in legislative matters.
In the mid-1990s, a surge in demand for student loans, spurred by rising college tuition, broadened borrowing eligibility, and a myriad of new lending options, led to complex growth in the student loan industry. Sallie Mae emerged as the industry’s largest player, as stated in a 2007 report titled, “Leading Lady: Sallie Mae and the Origins of Today’s Student Loan Controversy.”
In 1976, bipartisan legislation powered by Sallie Mae and Washington financial interests was passed, rendering federal student loans non-dischargeable in bankruptcy for five years after repayment initiation, unless borrowers demonstrated “undue hardship.” This remarkable removal of standard bankruptcy rights was justified by claims of a crisis where graduates were flocking to bankruptcy courts to eliminate their debts.
However, a 2013 policy brief from the Reason Foundation revealed that “the narrative of graduates routinely declaring bankruptcy post-graduation, pushed by Sallie Mae and lending companies, aimed to further protect lenders from risk.” The discharge rate of student loans in bankruptcy proved to be less than 1 percent, significantly lower than other debt types.
Initially, a waiting period for bankruptcy discharge might have seemed trivial to Congress, but Sallie Mae’s influence was just starting. Over the following years, exceptions for discharge expanded to include loans from nonprofit companies and a waiting period increase to seven years came in 1990.
In 1991, Sallie Mae successfully persuaded Congress to eliminate statutes of limitations for federal student loans. By 1998, Sallie Mae and the wider student loan industry abolished any waiting period for bankruptcy discharge with the Higher Education Amendments.
Policy Changes That Helped the Lending Industry Thrive
The annual number of loans issued between 1990 and 2000 doubled from 4.5 million to 9.4 million, as noted in a 2001 brief by the American Council on Education. “This surge in student borrowing was significantly bolstered by legislative changes early in the decade.”
To manage the rising demand, Sallie Mae pursued acquisitions, securing two major student loan guarantors, USA Group and Southwest Student Services, by 2002. Consequently, it also acquired collection companies, dominating all aspects of the student loan industry by 2006, as noted in a 2010 report from the World Socialist Web Site (WSWS). These companies primarily generated their revenue by collecting from defaulted loans.
Sallie Mae transitioned into a fully private entity in 2004. “Sallie Mae’s acquisitions of guarantee, origination, and collections companies transformed the student loan marketplace, establishing it as the uncontested giant of the industry,” reported the Reason Foundation.
Sallie Mae and the student loan sector weren’t done yet. In 2005, they lobbied Congress successfully to strip bankruptcy rights from all student loans, including those from private lenders through the sweeping Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. They claimed this change would allow more lending to struggling students; however, this was not the outcome. Instead, they began demanding cosigners—typically parents—for nearly all private loans.
The student loan industry flourished during this time. In 2005, Sallie Mae was hailed by Fortune as the second most profitable company in the U.S., with its CEO, Albert Lord, being the “highest-paid CEO in Washington, D.C.,” that year.
By 2004, Lord boasted to shareholders about the company’s practice of “writing checks” to the Treasury annually due to the government’s profits stemming from defaulted loans through Sallie Mae’s collections.
Contrary to any other lending sector, the federal government generating profits from defaulted student loans signals a predatory lending landscape. Currently, the Department of Education directly owns the loans rather than merely guaranteeing them, which amplifies this issue.
How Politicians Supported the Growth of the Student Loan Industry
Federal student loan servicers generate increased revenue from defaulted loans than performing ones through “student loan rehabilitation.” In this program, defaulted borrowers make nine payments over ten months before signing a new, often larger loan. Companies assisting these rehabilitations gain 16 percent of the value of the new loan, creating a conflicting incentive structure that favors defaults.
Wall Street and Washington found a method to profit from a lending instrument: erasing consumer protections, inflating loan amounts—particularly through defaults—and employing aggressive collection strategies described by Senator Elizabeth Warren as making “a mobster envious” to extract funds from borrowers and their families.
This is precisely the predatory lending narrative the founding fathers sought to avoid with their commitment to uniform bankruptcy rights and equal protection under the law.
Under President Barack Obama, the lending program underwent nationalization, with the Department of Education managing and owning all new loans from July 2010 onward. While private companies like Sallie Mae disliked this shift, they remained involved by servicing healthy loans and collecting on defaulted ones.
Unfortunately, this restriction limited lenders’ revenue streams, making rehabilitating defaults considerably more lucrative than servicing loans, thus amplifying the existing perverse incentives to push borrowers into default.
This shift proved beneficial for the Department of Education, allowing it to earn interest on the loans, with some revenue even being utilized to fund the Affordable Care Act. The federal government relished this arrangement as lending surged, generating more interest income.
This also highlighted that the Department of Education had no intention of effectively managing the lending program during Obama’s administration. The income-driven repayment (IDR) plans in place were designed such that many borrowers were disqualified. A study found that between 2013 and 2014, 57 percent of borrowers “fell out” of these programs due to income verification failures—one of many obstacles borrowers face to receive promised loan forgiveness after years of payments.
The Department of Education actively sought to prevent bankruptcy rights from returning to student loans during Obama’s term. They routinely submitted testimony in bankruptcy cases and intervened directly or through contracted attorneys.
Despite promises from Democrats to restore bankruptcy rights to federal student loans (which went unfulfilled in 2008), President Obama merely ordered a “study” on the matter, resulting in no significant progress. During his presidency, approximately $1 trillion was added to the student debt burden, according to my analysis.
The Worsening of the Crisis
President Donald Trump’s initial term was inconsistent. He appointed Betsy DeVos—who had financial ties to student loan collection companies—as his Secretary of Education. DeVos presided over the Department in worse faith than her predecessor, facing federal judicial threats for disregarding a court order regarding loan collections for students from a bankrupt for-profit college.
However, Trump did offer some unexpected highlights. He became the first president to broadly cancel student loans through executive order, initially doing so in August 2019 for 25,000 disabled veterans, followed by a general loan repayment pause at the start of the COVID-19 pandemic. This demonstrated the president’s ability to cancel federal student loans without legal backlash.
Interestingly, these actions contributed to my organization launching a petition in March 2020, advocating for the reinstatement of bankruptcy rights for all student loans, sparking public discourse on loan cancellation by executive order. The petition gained momentum, gathering hundreds of thousands of signatures and capturing media attention. Within six months, prominent senators, including Elizabeth Warren and Chuck Schumer, started calling for similar measures.
Joe Biden, the eventual victor in the 2020 election, promised to “eliminate” the student debt of individuals at public colleges and Historically Black Colleges and Universities (HBCUs), along with restoring conventional bankruptcy rights for student loans.
However, Biden’s efforts in 2023 to fulfill these commitments were overturned by the Supreme Court. While many attribute this outcome to lawsuits from Republican attorneys general, a significant factor was also opposition from key Democrats.
Shortly after the 2020 election, Steven and Mary Swig, a billionaire couple from San Francisco, circulated a memo among Democratic leaders asserting that the president lacked the authority to cancel student loans by executive order. Shortly thereafter, leaders like Nancy Pelosi and Susan Rice echoed this sentiment, aligning their views with the Swigs’ memo. When the Supreme Court delivered its ruling, Chief Justice John Roberts cited Pelosi in the majority opinion.
It appears Biden himself was hesitant about this initiative. Shortly after the election, he rejected a proposal to forgive “$50,000 in student loans,” as reported by ABC News, deeming the legislative backing for the cancellation as “ill-fitting.”
The loan cancellations under Biden’s administration were primarily due to pre-existing laws, rather than any direct action taken by him. While Democrats touted these cancellations as evidence of their commitment to student borrowers, the fact remains that these actions were minimal compared to the overall growth of student loan debt.
Concerning the restoration of bankruptcy rights, the Biden administration did cease “opposing” student loan borrowers in bankruptcy court but effectively replaced the process with a mechanism that transferred decision-making power from judges to the Departments of Education and Justice. This new process has proven cumbersome for borrowers, with only around 2,500 individuals out of 450,000 filing for bankruptcy since its implementation receiving any relief (a mere 0.6 percent).
Meanwhile, Dick Durbin, the former chairman of the Senate Judiciary Committee, introduced a bipartisan bill, the FRESH START Through Bankruptcy Act of 2021, with Republican Senator John Cornyn. It aimed to make “federal student loans eligible for discharge in bankruptcy ten years after the first loan payment is due.” However, key Democrats, including Elizabeth Warren, refused to support the bill.
Looking ahead to 2025, Trump may return to the presidency, alongside a Republican-controlled White House and Congress. He has vowed to abolish the Department of Education and “return student loans to the states,” a proposition that remains vague. Following a Supreme Court ruling, he may proceed with dismantling the department.
The passage of the One Big, Beautiful Bill in July 2025 worsens the situation for student borrowers. This legislation reduces “repayment plan options from seven to two… and also caps the borrowing amounts for higher education,” states CBS News. Most alarmingly, the bill eliminates the President’s authority to cancel loans by executive order and allows defaulted borrowers to rehabilitate their loans only twice, resulting in an expected recurrence of defaults around 80 percent of the time.
Both parties in Washington have collectively conspired to perpetuate this failed loan scheme. This dynamic is not merely detrimental; it borders on immoral. We stand on uncharted ground where it’s conceivable that half of all student loan borrowers may default in the near future. This reality illustrates the very concerns the founding fathers expressed regarding uniform bankruptcy rights. The worsening crisis will inevitably have dire consequences for millions.
Action can be taken to counter this trend by urging Congress and the president to reinstate the constitutional bankruptcy rights that were stripped away. This would halt the prevalent abuses seen within the system and prevent more profound financial distress from the lending industry—especially considering the implications of the “One, Big, Beautiful Bill” of 2025. Over time, these changes should lead to more rational pricing and a more sensible lending environment.
What Other Countries Are Doing to Ensure Access to Higher Education
While the U.S. struggles with the importance of investing in public education, other countries have embraced the need for a well-educated workforce to sustain economic vitality.
In both Norway and Sweden, higher education is “tuition-free,” ensuring equitable learning access. Germany offers a dual apprenticeship system, merging classroom instruction with practical training, thereby equipping graduates for industry demands. Denmark provides students with financial grants to support their education.
“Switzerland has established a vocational education model allowing students to balance their time between school and work in sectors like healthcare, IT, and advanced manufacturing. Singapore’s SkillsFuture program grants financial credits to adults for pursuing short courses throughout their careers. In Finland, adults can access publicly funded retraining programs to acquire new skills amid shifting job landscapes,” as highlighted in an opinion piece by The 74 in May 2025.
The student loan crisis in the U.S. stems not only from rising tuition costs but also from decades of policy decisions that transformed higher education from a public good into a profit-driven enterprise for lenders and corporations. The erosion of bankruptcy protections, coupled with monopolistic practices in the lending sector supported by a complicit Congress, has entangled millions in a debt cycle with no escape, devastating their financial futures and undermining the perceived value of a degree. In stark contrast, other nations are focusing on free or low-cost education, vocational training, and ongoing learning as a foundation for both economic advancement and social equity. To stem this growing crisis, the United States must tackle its broken system head-on by reintroducing crucial consumer protections, lowering education costs, and reaffirming the concept of education as a public asset.
