Three Ways to Reduce Student Loan Debt

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 — 92% — of this debt is from federal loans. Meaning, less than $1 out of every $10 of student loan debt is a private loan. 

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®

Just 68% of families filled out the FAFSA in the 2020-2021 academic year, according to Sallie Mae® and Ipsos’ “How America Pays for College 2021” research report. That’s the lowest level in the 14-year history of the report. 

In addition, 44% of families who didn’t file believed they wouldn’t qualify for any federal financial aid, and 34% said they missed the deadline, found the application problematic or too complicated, or didn’t have the time. Not completing the FAFSA, however, means families could be leaving thousands of dollars in scholarships, grants, and work study on the table. 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 a scholarship search tool and a planning calculator — to help limit the debt students need to take on.