The great promise of higher education has always been grounded in opportunity, personal and professional growth, and upward social mobility. Earning a degree equips students with the skills to compete in an evolving economy, increases lifetime earnings, and creates lasting multi-generational impact, especially for those from economically disadvantaged households.

Looking at lifetime earnings alone, the value of a higher education for the vast majority of Americans is undeniable. Sadly, these benefits are slipping away for too many. The cost of attendance is rising more rapidly than wages for college graduates, squeezing the “return on investment” for a degree. Since 2000, tuition at public four-year institutions has surged nearly 180 percent.

SOURCE: U.S. Census, Bureau of Labor Statistics and National Center for Education Statistics

Institutional spending on administrative expansion, facilities, and non-academic programs has led to an ‘arms race’ among schools with costs passed along to students and families, many of whom already struggled to make college affordable. The system also notoriously lacks transparency, ranging from admissions and selection criteria to the real cost of attendance, making it very difficult for families to comparison shop and make informed decisions.

A System That Fuels Rising Costs

The federal loan program, originally designed to provide better access to higher education, has made college less affordable, and ushered in an age of overborrowing. Each year, the government lends more than $80 billion to students and families. Over the last two decades, loan limits have gone up and the federal government allows students and families to borrow more and more, much of it without ever assessing their ability to repay this debt. The Federal Reserve Bank of New York found much of the increases in loan limits directly translated to tuition increases. And these tuition increases, in turn, are forcing students and families to borrow even more.

Federal Graduate and Parent loans are made in virtually unlimited amounts, and again, without any meaningful assessment of the borrower’s ability to repay them. This unconscionable practice has no equivalent anywhere in the financial world. The impact has been staggering. Today, 3.6 million families owe collectively more than $100 billion in Parent PLUS loans. Federal graduate lending has exploded, adding another $100 billion more to the federal balance sheet, accounting for nearly half of all newly issued federal student loans. These programs have been labeled ‘predatory’ from experts on both sides of the aisle, and polling confirms most Americans believe addressing the unlimited nature of federal loan programs will protect students, and make college more affordable. According to the Committee for a Responsible Budget, reforms to graduate lending alone could generate over $40 billion in savings over the next decade—money that could be used to expand Pell grants and need-based aid.

Redirecting Resources to Those Who Need Them Most

Pell Grants, once a cornerstone of college affordability for those who truly needed assistance, haven’t kept pace with rising tuition. They now cover less than 30 percent of the average cost at a four-year public university, down from nearly 80 percent in 1980. Meanwhile, partly the result of missteps like the recent FAFSA delays, more than $4 billion in Pell Grants went unclaimed last year— money that could have helped students who need it most. Increasing Pell Grants for those who need the most support is one of the most effective ways to reduce their reliance on borrowing and keep access to college within reach for all Americans.

Allowing students to use grant aid on non-traditional programs, including short-term job training or apprenticeships, would help more individuals find a long-term path to professional and financial success. A traditional 4-year college continues to be attractive for most, but it is not the right answer for everyone.

Fixing the system, however, isn’t just about shifting resources, it’s also about transparency and ensuring families can make informed choices. College admission is stressful, and offer letters compound the problem. Financial aid offers should be clear, standardized, and easy to compare, giving families the information to make responsible school selections and financial decisions. That is not the case today.

We also need to help more students complete their degree. The great promise of higher education comes not from earning a few credits but from walking across the graduation stage. According to the National Student Clearinghouse, the number of Americans who have some college experience but no degree has now reached a staggering 40 million. Sallie Mae has partnered with Delaware State University to study how near-completer students can be re-engaged and policy solutions that help them complete their degree.

The Need for Reform

By offering federal Graduate and Parent PLUS loans in virtually unlimited amounts, and without considering the borrower’s ability to repay them, the federal government continues to operate like a predatory lender that saddles families with unsustainable levels of debt. This isn’t a failure of students and families—it is a failure of policy. Without meaningful reform to curb overborrowing, the cost of college will keep rising, another generation of students will keep taking on unaffordable debt, and taxpayers will keep footing the bill.

The solutions exist. Now is the time to act.

The federal government lends over $80 billion in student loans every 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, which includes Graduate and Parent loans, are made in virtually unlimited amounts and without meaningful underwriting, often to students and parents who are not able to pay them back. This has contributed to overborrowing and the rising cost of higher education.

In addition, the system notoriously lacks transparency, ranging from admissions and selection criteria to the real cost of attendance, making it very difficult for families to comparison shop and make informed decisions.

Addressing these issues would bring long-lasting solutions that are good for students, parents, and 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 roughly $1.74 trillion in student loan debt as of the second quarter of 2024. Of that total, roughly 93% are made by the government. The remaining 7% are private student loans, which are credit based and underwritten by private lenders, who assess ability to repay before making a loan.

One of the biggest drivers of unsustainable debt is the federal program’s allowance for near-unlimited borrowing—including loans to parents that largely do not assess their ability to repay. These loans now total more than $100 billion for more than 3 million families.  Federal graduate lending has also exploded, adding another $100 billion more to the federal balance sheet, accounting for nearly half of all newly issued federal student loans.

These programs have been labeled ‘predatory’ from experts on both sides of the aisle, and polling confirms most Americans believe addressing the unlimitednature of federal loan programs will protect students, and make college more affordable. 

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. Putting reasonable limits on these federal 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.

Borrowing should never be the first option for paying for college, but the current federal financial aid system is poorly designed to avoid it. Pell Grants, once a cornerstone of college affordability for those who truly needed assistance, haven’t kept pace with rising tuition. They now cover less than 30 percent of the average cost at a four-year public university, down from nearly 80 percent in 1980. Redirecting resources to expand Pell Grants could boost enrollment and retention for students who show financial need. Increasing Pell Grants for those who need the most support is one of the most effective ways to reduce their reliance on borrowing and keep access to college within reach for more students.

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. Reforms to graduate lending could generate more than $40 billion in federal savings over the next decade[RC1] [TC2] . That’s funding that could be redirected to expand need-based aid and support for non-traditional and workforce-aligned programs—creating more pathways to success without unsustainable debt.

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.

 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.

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 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 and other institutions nationwide.

Without meaningful reform to curb overborrowing, the cost of college will keep rising, another generation of students will keep taking on unaffordable debt, and taxpayers will continue footing the bill. 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.

The Federal Government Continues to Allow Parents and Students to Overborrow to Pay for College

The federal loan program, originally designed to provide better access to higher education, has made college less affordable, and ushered in an age of overborrowing. Each year, parents and students borrow more than $80 billion from the federal government for higher education. Over the last two decades, loan limits have gone up and the federal government allows students and families to borrow more and more, much of it without ever assessing their ability to repay this debt. The Federal Reserve Bank of New York found much of the increases in loan limits directly translated to tuition increases. And these tuition increases, in turn, are forcing students and families to borrow even more.

Federal Parent loans and federal loans to graduate students are made in virtually unlimited amounts, and without any meaningful assessment of the borrower’s ability to repay them. The impact has been staggering. Today, 3.6 million families owe collectively more than $100 billion in Parent PLUS loans. Federal graduate lending has exploded, adding another $100 billion more to the federal balance sheet, accounting for nearly half of all newly issued federal student loans.

Complex applications for financial aid, and confusion over eligibility for grants and scholarships also  contribute to overborrowing.

Here are three ways to help address overborrowing:

Set Reasonable Limits for Federal Loan Amounts

Graduate and Parent PLUS loans now make up nearly half of all newly issued federal student loans. The government continues to allow parents to overborrow for college, leading to mounting debt, delayed retirement, and possible garnishment of social security benefits.

These programs have been labeled ‘predatory’ from experts on both sides of the aisle, and polling confirms most Americans believe addressing the unlimitednature of federal loan programs will protect students, and make college more affordable.  Putting reasonable limits on these federal loans can  prevent students and parents from borrowing more than they can afford to repay.

Encourage Students to Start with Grants and Scholarships

The Free Application for Federal Student Aid (FAFSA®)* opens the door to more than $100 billion in scholarships, grants, state-based aid, federal student loans and work-study programs each year. Still, roughly 30% of families didn’t apply last academic year, including those from low-income families who would be most eligible for free money like scholarships and grants. Many aren’t applying because they believe their family’s income is too high to receive funds, or they simply lack awareness about the FAFSA.

It’s ’s critical we continue to educate students and families about the importance of completing the FAFSA so they can access free money for college.

Similarly, more than $100 million in scholarships goes unclaimed each year. Too many students and families don’t apply for scholarships thinking they are reserved for top students or athletes, but there are scholarships available for a wide variety of skills and interests. Free resources like Scholly Scholarship Search by Sallie simplifies the process, connecting students and families to scholarships. In addition, Pell Grants, once a cornerstone of college affordability for those who truly needed assistance, haven’t kept pace with rising tuition. They now cover less than 30 percent of the average cost at a four-year public university, down from nearly 80 percent in 1980. What’s more, nearly $4 billion in Pell grants went unclaimed last year. Increasing Pell Grants for those who need the most support is one of the most effective ways to reduce their reliance on borrowing and keep access to college within reach for more students.

Standardize Financial Aid Offers

Financial aid offers too often leave families confused about the true cost of higher education, according to a study by the federal Government Accountability Office (GAO). It found 91% of colleges and universities did not clearly state the net price of college — the amount a student owes after scholarships and grants — in their financial aid offers. 

A standardized, transparent offer that clearly itemizes direct costs and fees would help students and families make informed decisions about which school to attend and how much they’re expecting to pay—ultimately helping to avoid overborrowing.

Without meaningful reform to curb overborrowing, the cost of college will keep rising, another generation of students will keep taking on unaffordable debt, and taxpayers will continue footing the bill. These three reforms are important steps toward helping students and families borrow responsibly, while ensuring access to higher education.

FAFSA is a registered service mark of U.S. Department of Education, Federal Student Aid