Students and families borrow nearly $100 billion from the federal government annually

Each year, students and families borrow nearly $100 billion from the federal government for higher education. Many times, they’re borrowing more than they need to, and often more than they are able to repay.

In the 2021-22 academic year, 49% of bachelor’s degree recipients from public four-year institutions graduated with an average federal debt level of $20,700 per borrower, found College Board’s 2023 Trends in College Pricing and Student Aid.  According to Sallie Mae’s How America Pays for College report, students during the 2022-2023 academic year borrowed an average of $11,337 and parents $13,507 to pay for higher education, an increase of 21% and 25%, respectively, over the previous year.

Programs that allow unlimited loan amounts, complex applications for financial aid, and confusion over eligibility for grants and scholarships all contribute to overborrowing.

Here are three ways to help address overborrowing:

Encourage Students to Start with Grants and Scholarships

Each year, the Free Application for Federal Student Aid (FAFSA®)* opens the door to more than $100 billion in grants, scholarships, state-based aid, federal student loans and work-study programs. Still, 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 the form is too complex, they believe their family’s income is too high or they simply lack awareness about the FAFSA. 

Adding to the complications this year are significant glitches and delays resulting from the rollout of a new, streamlined FAFSA. While the intent was to simplify the process and expand eligibility for need-based aid, persistent implementation issues have left students and families frustrated. Still, it’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 by Sallie simplifies the process, connecting students and families to millions of scholarships. In fact, to date Scholly by Sallie has helped students win more than $35 million dollars in scholarships.

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.

Consider Reasonable Limits for Federal Loan Amounts

Some federal lending programs allow students and families to borrow unlimited amounts to pay for higher education, a policy that has resulted in higher student and parent debt and contributed to the rising cost of tuition.

In fact, unlimited federal government loans have contributed to federal graduate student debt reaching its highest amount ever. According to a recent report by the U.S. Department of Education, the share of students who borrowed more than $80,000 to cover graduate costs increased from 1.4% in 2000 to 11% in 2016.

New America Foundation and the Urban Institute have recommended putting reasonable limits on these federal loans to prevent students and families from borrowing more than they can afford to repay. This type of reform could also slow the exponential growth of college tuition.

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

Let’s put it simply: the federal student loan system is broken.

The government lends upwards of $100 billion each year, yet the system too often fails the people it was designed to help – those who truly need public support to access and complete higher education. The availability of unlimited federal loans has helped drive significant tuition increases for both undergraduate and graduate students. 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 bewildered and at risk of overborrowing from the federal program.  

Students, families, and taxpayers deserve a better, more transparent system that works as it was originally intended – to support those who truly need taxpayer-funded assistance to access and complete higher education. 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 system that works for students, families, and taxpayers.

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Four Recommendations for Reform

1. 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 it most. Too often, students from underserved or underrepresented communities – many of whom are first-generation college students — lack tools and resources needed to make well-informed, confident decisions about paying for their higher education.

We support meaningfully expanding the Pell Grant for eligible students and further simplifying the Free Application for Federal Student Aid (FAFSA). These actions would make a significant difference for these students, giving them easier access to more funds. Financial aid offers from schools should also be clear and 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 any and all students and families access to free college planning tools including a scholarship search tool.

2. Empower degree completion, not simply attendance.

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: Roughly six in 10 students who start college graduate in six years. It’s a combination that leaves them struggling financially.

Issues that students struggle with while pursuing their education, such as mental health concerns or housing and food insecurities, are among some of the barriers that may keep students from graduating. More resources should be made available and put in place to address these issues.

Often small debts, overlooked bills, or expenses can also 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’re also exploring opportunities through our charitable arm, The Sallie Mae Fund, to help institutions research and implement new programs to help students complete college.

3. Address college costs and protect against overborrowing.

Of the $1.7 trillion outstanding student loan debt in 2022, $1.59 trillion – or about 93% – is  made and held by the federal government. The remaining – roughly  7% of student loan debt – was held by numerous private lenders, including Sallie Mae. This amount of federal student loan debt is a more than a four-fold increase since 2005, when student loan debt totaled $391 billion.

Unlimited federal lending programs have driven increases in tuition as students and parents borrow more than ever before to pay for higher education. Common sense reforms to these programs would protect families from taking on more than they can afford to repay and also encourage students to consider all educational options, bending the curve of rising college costs.

4. Encourage other forms of higher education.

Attending a four-year college directly after high school has been considered the expected path to higher education, even though many students may be better served at a two-year college or vocational program.

Reform efforts should encourage “non-traditional paths” — all forms of higher education — from community college to short-term training programs. Allowing students to use the Pell Grant for intensive skills courses, for example, would make it easier for people to affordably attend job training programs.

Moreover, colleges and universities should consider providing additional support to non-traditional students, which the Department of Education defines as students who are “independent for financial aid purposes, having one or more dependents, being a single caregiver, not having a traditional high school diploma, delaying postsecondary enrollment, attending school part time, and being employed full time.” At least 70% of students have at least one of these characteristics and they may need additional support, such as access to childcare or more flexible financial aid packages.

The Government Accountability Office confirms financial aid offer letters leave families confused about the true cost of higher education. This needs to change. 

A recent study by the federal Government Accountability Office (GAO) found that 91% of colleges and universities understated or did not include a net price — the amount a student pays after scholarships and grants — in their financial aid offer letters. In addition, many financial aid offers don’t itemize costs such as tuition, fees, housing, books, and transportation, which lead to surprise expenses for families and makes budgeting difficult.

These “award” letters, which colleges and universities send to accepted students each year, outline their eligibility for scholarships, grants and other aid to attend that institution and are critically important for students and families evaluating costs.

There is no standard format for how this information is presented, leaving too many families confused about the true cost of college and what type of aid they qualify for. Establishing a standard offer letter would be a good step toward providing clarity and transparency.

Hidden Costs

The same GAO study found some offer letters do not clearly identify funds that need to be repaid like federal student loans. Several offers also subtract Parent PLUS loans – federal loans made to parents with minimal credit checks and no reasonable borrowing limits – from the total cost of attendance.

The report notes just how misleading this can be: “Subtracting this type of loan from the cost of attendance can drastically underestimate the amount a student’s family will need to pay for college.”

Taken all together, families can’t make smart financial decisions if they don’t have a transparent and complete overview from colleges of the costs they’ll pay.

Reform Is Needed

The GAO report concluded, “further congressional action would be necessary to ensure that students receive the information they need in their financial aid offers to make informed education and financial choices.” 

Creating a standard offer letter — that clearly calls out the net price and itemizes direct costs — would be a critical step in making the higher education financing system more transparent, ultimately helping students and families make more informed decisions about what school to attend and how to pay it and prevent overborrowing.

To help set students and families up for success to, through, and immediately after college, we’ve broken down what to expect in an offer letter and what it can mean for their future.

Student loan debt on the rise. 

The amount of outstanding student loans in the U.S. has been on the rise for years, and it reached a record-breaking high in 2022 at $1.7 trillion. This is more than a four-fold increase since 2005, when student loan debt totaled $391 billion.

Federal v. Private: What’s the difference?

The federal government is the largest provider of student loans. In fact, the government holds about 93% of all student loan debt, meaning fewer than $1 in $10 of student loan debt is owed to private lenders. Private student loans, like those originated by Sallie Mae, are recommended as supplemental support for students and families who have financed the bulk of their education with income, savings, scholarships and grants, and aid from the federal government.

How does Sallie Mae Help?

With Financial Planning Calculators for Students & Families

Paying for higher education should be simpler and students and their families should be informed, understanding loan choices and how repayment works before committing to a loan. Sallie Mae’s easy-to-use online financial planning tools and resources make it clear how the choices students make today can affect their lives tomorrow. In 2020, Sallie Mae helped more than 420,000 students and families finance their education, and that lending philosophy is working: On average approximately 2% of our loans in repayment default annually.

With Free Scholarship Search Tools

In the 2021-22 academic year, 60% of families used scholarships to pay for college, according to the 2022 How America Pays for College report. Sallie Mae provides a free scholarship search tool, helping students and families find more free money to pay for college. The tool opens doors to a variety of scholarships based on majors, locations, and even unique interests.

By Making Applying for the FAFSA Easier

In 2021, 62% of families said they would definitely or probably submit the FAFSA®, the Free Application for Federal Student Aid, but only 20% reported feeling prepared, according to the 2022 College Confidence: What America knows about paying for college report. Sallie Mae offers a comprehensive FAFSA application guide that simplifies the process to complete and submit the form, opening the door to $112 billion in federal funding, such as grants and scholarships.

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

We’re in the business of providing responsible financial tools – and financial literacy  

The Sallie Mae® of today might surprise you. We’re no longer a government student loan servicer — in fact, we’re a completely different business and have been for nearly a decade. Today, we’re a bank and education solutions provider with free college planning resources and financing, such as private student loans, to students and their families.

Sallie Mae is not a federal loan servicer.

The name Sallie Mae has been around since the ‘70s, but the company who uses the name today is actually pretty new.

When Sallie Mae first formed, it was a government-sponsored enterprise servicing federal student loans — or loans made by the government. But in 2014, it split into two separate companies. The Sallie Mae of today took the name and became a consumer banking business. The other company became Navient. Importantly, the two companies are independent and not associated with one another.

Of the $1.7 trillion outstanding student loan debt in 2022, $1.59 trillion – or about 93% – was made and held by the federal government. The remaining roughly 7% of student loan debt was held by numerous private lenders, including Sallie Mae.

Sallie Mae is in the business of fair and responsible lending.

Sallie Mae’s approach is shaped by our responsible lending philosophy — that students and families should not be overburdened with loans that they won’t be able to repay. Simply put, students shouldn’t pay more for college than necessary.

We believe that higher education should be affordable and accessible, and we’re committed to making that a reality. Private student loans should be used to fill the gap between resources available to students and the remaining cost of college, and not as a first resort.

In fact, taking out a private loan is the last step of our three-step approach used to guide students and their families through all of their options. The first step is to find money you won’t have to pay back, or ‘free money’, such as scholarships and grants. The second step is to explore federal student loans by filling out the Free Application for Federal Student Aid (FAFSA®) and gaining access to more than $110 billion in federal aid available through the government.

And our responsible lending approach works. In 2020 alone, Sallie Mae provided support to more than 420,000 students and families seeking financing for college and graduate studies. In addition, on average approximately 2% of our loans in repayment default annually.

Sallie Mae is committed to helping students succeed.

Providing responsible financing is just one part of how Sallie Mae achieves its mission of powering confidence for students and families navigating their unique journeys to, through, and immediately after college. Our goal is to help families make informed decisions about higher education which is why we provide free financial planning tools for anyone to use, whether they’re a Sallie Mae customer or not. 

We guide students and their families by emphasizing financial literacy from day one – before they even take out a loan. Our array of tools and resources to help students effectively plan and pay for college are available for free on our website.   

Examples of our tools include:

• A free scholarship search tool that matches students with scholarships based on their skills, activities and interests.
• We provide a variety of college planning tools and calculators to help customers understand how to best save and pay, including a college cost calculator, college planning calculator, and student loan payment amount estimator.
• Our Bridging the Dream Scholarship Program, through our charitable arm, The Sallie Mae Fund, in partnership with Thurgood Marshall College Fund, provides millions of dollars to support access and completion for students from underserved communities.

If students do decide to take out private student loans with us, we want to make sure they’re informed. We provide clear communications regarding their choices, including the option for undergrad and grad students to make payments while in school. Roughly half of Sallie Mae customers go this route, which helps save on the total cost of their student loans. We also provide consistent communication regarding their loans, including an annual statement detailing what they owe.

We know that financing higher education is complex and confusing, but Sallie Mae is here to make sense of it all. That means ensuring students and families feel confident and informed about how to plan and pay for higher education, and if they need to borrow, we’ll provide responsible options that power them throughout their unique journey.

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

Twenty-five diverse and deserving students from across the country received $10,000 to help pay for their higher education through Sallie Mae’s Bridging the Dream Scholarship for High School Seniors. This year’s recipients excel inside and outside the classroom and are attending a diverse set of institutions – state colleges, ivy league universities, and Historically Black Colleges and Universities. Many of the recipients are also from underrepresented or historically underserved communities who often need additional support to access higher education. 

The Bridging the Dream Scholarship program is part of a $3 million commitment made by The Sallie Mae Fund – in partnership with Thurgood Marshall College Fund – to open doors of higher education for students from all backgrounds. 

In addition to The Bridging the Dream Scholarship for High School Seniors, Sallie Mae also offers The Completing the Dream Scholarship, and The Bridging the Dream Scholarship For Graduate Students. 

Meet the 25 outstanding students.

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2022-2023 Bridging the Dream Scholarship Recipients

Each year, the amount of student loan debt held by Americans grows. It reached a record-breaking high in 2021 at $1.7 trillion, more than four times its 2005-level of $391 billion. 

The vast majority — 93% — of this debt is from federal loans. Meaning, less than $1 out of every $10 of student loan debt is a private loan. Without significant changes to the federal student loan program, the debt cycle will continue for students and families.

Here are three policy changes the federal government could enact to reform the student loan system and support students and families who need financial assistance:

1. Meaningfully Increase Pell Grants

Pell Grants provide need-based financial assistance to low-income students to help pay tuition, fees, room and board and other expenses. Since grant funding doesn’t need to be repaid —it’s essentially free money — distributing more funds through the Pell Grant would likely mean these students would take on fewer loans. 

Critically, Pell Grants also ensure that the aid goes to the students who need it most, helping to increase access and make the college funding system more equitable.

2. Simplify the FAFSA®

Seven in 10 (70%) families reported completing the Free Application for Federal Student Aid (FAFSA®) for academic year 2021-22, but three-quarters were unaware the FAFSA® is available starting in October, potentially leaving thousands in first-come, first-served free money on the table, according to “How America Pays for College 2022,” the annual study from Sallie Mae® and Ipsos.

The FAFSA® is the gateway to accessing more than $112 billion in grants, scholarships, and federal financial aid for higher education and states and colleges rely on information from the FAFSA® to determine need-based aid. Six years ago, the Department of Education moved the FAFSA® application start date from Jan. 1 to Oct. 1 to give families more time to complete it and better understand their financial aid eligibility earlier in the college application process. Despite those efforts, 75% of families are still unaware of the Oct. 1 open date, and only a little over half of families (54%) know all students are eligible to submit the FAFSA®. Many families also bypass the FAFSA because they don’t think they’d qualify for aid or find the application to complicated.

Lawmakers recently passed a bill that would simplify the form, but more is needed, including better informing students and families about deadlines to submit the form and debunking the perception that income is the only factor the government uses to decide if a student qualifies for federal financial aid.

3. Increase Loan Transparency

Federal student loans are subjected to less rigorous disclosure requirements than private student loans.  The federal borrowing process could be improved to more clearly inform students and families about their specific borrowing plans.

Sallie Mae, a private lender, offers a variety of tools to ensure responsible lending — including Scholly, a one-stop shop to search and apply for millions of dollars of scholarships.

Sallie Mae’s^® mission is to power confidence for students and families along their unique journey through higher education. As a private student loan lender, we continue to prioritize providing families with the tools, resources and – if needed – responsible financing as they navigate to, through, and immediately after college.

Here are three examples of how we’re doing that:  

1. Simplifying College Planning

Earning a college degree sets students up for long-term success but applying to and paying for school can be complex. Sallie Mae provides students and families a variety of free tools aimed at simplifying that process, including Scholly, a one-stop shop for students and families to search and apply for millions of dollars of scholarships, so that they can responsibly pay for their higher education.

2. Awarding Scholarships

As part of an effort to support access and completion in higher education, Sallie Mae^® has committed millions in scholarships to support students from underserved communities.

Through academic year 2023-2024, The Sallie Mae Fund is partnering with Thurgood Marshall College Fund to provide $3 million in scholarships to help minority students and students from underserved communities access and complete higher education.

“Higher education transforms lives, and we’re committed to removing the financial barriers that so often prevent students from persisting to degree completion,” said Dr. Harry Williams, President and CEO of Thurgood Marshall College Fund. “That’s why we are thrilled to partner with Sallie Mae^® on this scholarship program.”

Scholarships from Sallie Mae^® continue to open the door to higher education for students and families who otherwise may not have access to these opportunities.

“As a first-generation and low-income student, I would not be able to pursue a legal education without the generosity of others,” said Vanessa Agudelo, a J.D. candidate at Harvard Law School who received a Sallie Mae^® Bridging the Dream scholarship last year. “For students like me, getting accepted into the law school of your dreams is not enough. This scholarship has provided me with the financial resources to allow me to pursue my dream of becoming an education lawyer and increasing educational opportunities for vulnerable communities.”

3. Advancing Financial Education

For many students and families, paying for college is one of their first major financial decisions and research continues to show those with a plan are better prepared and more confident in meeting those costs. Research also shows that families are hungry for more financial education in high school. Last year, Sallie Mae^® offered free financial literacy curriculum to high school students and their families on topics about saving, budgeting, financial aid, student loans, and repaying loans responsibly.

Through our college savings program, SmartyPig, we partnered with various personal finance experts to teach money management and saving tips for students and families with a focus on those from traditionally underserved communities.

In addition, Sallie Mae^® also offers financial education for students after graduation. The program provides lessons on how to budget, manage debt, and build and maintain good credit.  

These are just some of the many ways we’re Powering Confidence – supporting students and families on their journeys to, through and immediately after college. Learn more by reading our Corporate Social Responsibility report.

The latest Private Student Loan Report from MeasureOne provides a helpful glimpse into the private student loan industry — and some of the findings may surprise you.

Contrary to student debt-related headlines, students and families continue to effectively manage private student loan payments today. In fact, the overwhelming majority are back to making regular payments despite the pandemic, and fewer than 1% of loans are defaulting annually.

Private student lenders have an approach anchored on strong underwriting, assessing a borrowers’ ability to afford a loan. High rates of cosigner participation also help keep delinquency and default rates low. This year was no different, with these rates at their lowest since 2015 — accounting for less than 1% of all private student loans across the industry.  

Private student loans make up approximately 8% of outstanding student loans. The remaining 92% — roughly $1.59 trillion — are federal loans that are owned or guaranteed by the Department of Education. Recent stories have shed more light on some of the issues around federal student loan repayment.

Sallie Mae is committed to helping students achieve their higher education goals — and the last year-and-a-half was no exception. By empowering students with the knowledge, tools, and resources to make smart financial decisions, Sallie Mae can set them up for a lifetime of success and confidence.

Click here to view the full MeasureOne Private Student Loan Report. 

2020 presented many challenges to everyone — from battling the COVID-19 pandemic to addressing deep racial inequities that exist in our nation.

As part of its core operations, Sallie Mae® worked to alleviate the economic pressure caused by the pandemic and is making contributions toward the shared goal of closing the racial achievement gap. Sallie Mae’s commitment to powering confidence is not just good for business. It’s good for everyone.

Here’s how Sallie Mae helped increase access and opportunity through higher education in 2020:

Powering Community

The Sallie Mae Fund committed $4.5 million in scholarships and grants to promote diversity in higher education and advance social justice. This included a $3 million scholarship program with Thurgood Marshall College Fund to provide scholarships help minority students access higher education and complete their post-secondary programs.

In addition to scholarship support, Sallie Mae put $2.2 million toward charitable contributions in 2020. The Sallie Mae Fund contributed $1 million to local food banks where team members live, work, and serve. This contribution resulted in 2 million pounds of food, 900,000 meals, and personal protective equipment for food bank staff and volunteers.

Sallie Mae employees play a critical part in our efforts to power local communities. As protests and demonstrations led many local businesses in Delaware to board up their storefronts, Sallie Mae team member Jannah Williams partnered with local artists to turn boarded up storefronts into inspirational canvases. Her mural addressed our nation’s history of racial injustice and combined a collection of newspaper articles covering racism over the last two hundred years with images of civil rights leaders and the simple message: “We just want a kinder world than this.”

Powering Customers

As a leader in private student lending, we work hard to help students and families more easily access and complete higher education, and we provide a number of free tools to help them achieve that. In the 2019-2020 academic year, more than 24,000 students reported receiving at least one scholarship via our free scholarship search tool, covering $67 million in college costs. In light of the COVID-19 pandemic, Sallie Mae also offered tailored relief programs to give customers the ability to pause student loan payments.

We also recommend students and families use our 1-2-3 approach to paying for college — first scholarships and grants, then federal student loans, and finally private student loans to fill the remaining gap. And year after year, our fair and responsible approach to lending works. On average approximately 2% of our loans in repayment default annually.

Powering Team Members

Sallie Mae’s mission-driven approach extends beyond the students we support — it applies to our team members, as well. We strive to maintain a diverse and inclusive workplace, which is made possible by team members who actively listen and learn from another. To that end, we launched Diversity and Inclusion listening tours in 2020 to provide team members with a safe space to explore discussions about race, gender, identity, religion, age and background. Hundreds participated in these virtual discussions, which sparked conversations with leadership and team members for the remainder of the year.

Powering the Environment

Higher education is not our only priority at Sallie Mae — managing our environmental impact is also top of mind. From upgrading our facilities to reducing energy usage, to reducing our carbon footprint by migrating to cloud servers, we were able to reduce our energy expense in the office by 10%. We also reduced our paper usage and waste by 60% last year.

We’re helping our customers go green, too, with our transition to electronic statements. By the end of 2020, 88% of our customers opted out of paper statements and into the greener option of electronic statements.

Click here to view the full CSR report.