The federal government lends over $82 billion in federal student loans each year, yet the system too often fails those it was designed to help and continues to allow far too many students and families to overborrow to pay for higher education. Some federal student loans are made in virtually unlimited amounts and without meaningful underwriting, often to students and families who are not able to pay them back. This has contributed to overborrowing and the rising cost of higher education. In addition, too many resources are being used to fund federal loans to students and families with little need for taxpayer assistance. Those resources could be better used elsewhere to help those who really need support.

At the same time, a complicated application process to apply for scholarships, grants, and other federal aid, and confusing financial aid offers, leave too many students at risk of overborrowing—and unable to pay back their federal student loans.

We believe addressing these issues would bring long-lasting solutions that are good for the federal higher education system as a whole. 

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Three Recommendations for Reform

1. Address college costs and limit overborrowing

Americans hold $1.74 trillion in student loan debt as of the second quarter of 2024. Of that total, roughly 93% of loans today are made by the government. The remaining 7% are private student loans, which are credit based and underwritten by private lenders, including Sallie Mae, who assess ability to repay before making a loan.

By allowing virtually unlimited borrowing without considering the ability to repay, the federal program continues to create unsustainable debt levels and limits incentives to explore affordable education options. Common sense reforms to these federal student loan programs would protect families from taking on more than they can afford to repay and encourage students to consider all educational options, bending the curve of rising college costs.

2. Focus resources on those who need the most support

Access to higher education remains uneven. The federal student loan program continues to do too much for too many and not enough for those who need the most support. Too often, students from underserved communities – many of whom are first-generation college students — lack the tools and resources needed to make well-informed, confident decisions about paying for their higher education.

We know borrowing should never be the first option for paying for college, but the current federal financial aid system is poorly designed to avoid it. Redirecting resources to expand Pell Grants could boost enrollment and retention for students who show real financial need. We support meaningfully expanding the Pell Grant for low-income students, which could increase both college enrollment and retention. We also need to make it easier for them to apply. In 2024, more than $4 billion in Pell Grants went unclaimed, money that could have put higher education within reach of students who need it most.

In addition, the issues that have plagued the Free Application for Federal Student Aid (FAFSA^®) need to be fully addressed, so the already complex process of applying for federal financial aid is less confusing for students and families. Likewise, financial aid offers from schools should also be clearer and more transparent so that families understand the true cost of college and how much they will ultimately need to pay.

To do our part, we offer all students and families access to free college planning tools including a free scholarship search tool, and step-by-step FAFSA guide.

3. Empower degree completion

Access to college on its own is not enough – higher education stakeholders need to focus attention and resources on prioritizing college completion just as much as college access.

Far too many students take on debt without earning a degree. In fact, more than 40 million Americans have some college education but no degree. Too often, they are first-generation students and those from underserved communities.

In addition, roughly six in 10 students who start college graduate in six years. Research consistently shows financial issues, life changes, and mental health concerns are some of the barriers that keep students from graduating

Often small debts, overlooked bills, or expenses get in the way of completion. To address that issue, we created our Completing the Dream Scholarship in partnership with Thurgood Marshall College Fund.

We’ve also partnered with Historically Black College and University Delaware State University (DSU) to help close the college completion gap. Our $1 million research endowment to DSU funds a comprehensive three-year “Persistence and Completion Pilot Program” to study and understand barriers to college completion and help students return to school to complete their degrees. The research will help advance policy recommendations and best practices that enhance student re-engagement at DSU, HBCUs, and other institutions nationwide.

Reforming the system and addressing the cycle of ever-growing federal student loan debt will require collaboration among higher education leaders and stakeholders. Sallie Mae is committed to driving meaningful change by promoting a more transparent federal student aid system.