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Student loans: overview and issues

Listed author(s):
  • Kelly D. Edmiston
  • Lara Brooks
  • Steven Shepelwich

This report provides a detailed overview of the student loan market, presents new statistics that highlight student loan debt burdens and delinquency rates, and discusses current concerns among many Americans about student loans, including their fiscal impact. The report is intended to enhance awareness of the state of student loan debt and delinquency and highlight issues facing borrowers, creditors, the federal government, and society at large. ; Student loan debt has been increasing at a rapid pace in the last decade, climbing from about $364 billion in the first quarter of 2005 to $904 billion in the first quarter of 2012. Increasing levels of debt have been driven largely by growth in the number of borrowers, rather than growth in the average debt levels of individual borrowers. But average debt has increased moderately, and individual debt has become an increasing burden to some borrowers in light of the recent performance of the national economy. Along with this increase in student loan debt has been an increase in default rates. High debt levels, coupled with high default rates, present a number of challenges for individual student loan borrowers, but do not necessarily pose a substantial burden on society at large. An important factor in the recent climb in individual student loan burdens is the rising cost of higher education. ; While much of the concern about student loans is focused on borrower impacts, some have expressed concern about the potential for increased costs on the federal government. Data suggest that while the student loan program does impose some cost to the federal government under certain accounting methods, the costs are a small share of the federal budget. Various reform options that have been proposed, such as debt forgiveness, could change that dynamic, however. ; While the report does not offer specific suggestions on how to address the problems it highlighted, it does suggest some areas of concern to think about as policymakers consider student loans, and what some term to be the associated “crisis” around them. The clear message is that student loans present problems for some borrowers that are well worth addressing. At the same time, the analysis suggests that student loans do not yet impose a significant burden on society from their fiscal impact.

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Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 12-05.

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Date of creation: 2012
Handle: RePEc:fip:fedkrw:rwp12-05
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