The Federal Government Allows Students and Families to Overborrow to Pay for College. It’s Time to Put an End to It.

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.