Why Millennial’s Student Debt Makes More of a Difference Than You Think

In 1965, the federal government passed the Higher Education Act (HEA), which paved the way for today’s federal student loan program. Its stated goal was “to provide support to both individuals pursuing a postsecondary education and institutions of higher education.” More than a half-century later, the program’s success can be characterized as mixed, at best; the total student loan portfolio balance exceeds $1.4 trillion, with significant levels of delinquency.[1]

Much of the policy debate about student loans centers on the amount of debt that has already been issued, escalating default rates, and what can be done to make repayment more affordable. But often overlooked in this policy debate is the overall health of the student loan portfolio.

Fewer than 40% of student loans are fully repaid, often for reasons other than default. At the same time, new student loan refinancing companies are targeting the portfolio’s lowest-risk borrowers, which results in a higher-risk, lower-performing federal student loan portfolio.

While rates of default and non-repayment are high and expected to grow, millions of borrowers have obtained an education that otherwise might not have been possible. At the same time, the program has allowed the government to reduce unemployment levels, by shifting large numbers of people into higher education.

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