We Can Break the Cycle of Ever-Growing Federal Student Loan Debt While Protecting Access to Higher Education

Put simply, the federal student loan system is broken.

The government lends nearly $86 billion in federal student loans each year, yet the system too often fails the people it was designed to help.  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.

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Three 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 the most support. 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 low-income students, which could increase college enrollment and retention. And we need to make it easier for them to apply. In 2023, 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 problems that plagued the Free Application for Federal Student Aid (FAFSA) need to be solved before the next round of applications. This year’s fumbled rollout made the already complex process of applying for federal financial aid even more confusing. 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.

2. 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 partnered with HBCU Delaware State University (DSU) to help close the college completion gap. Our $1 million research endowment to Delaware State University 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 recommendation and best practices that enhance student re-engagement at DSU, HBCUs, and other institutions nationwide.

3. Address college costs and limit overborrowing.

Americans hold $1.77 trillion in student loan debt as of the second quarter of 2023, up 1.25% year over year. Of that total, roughly 93% are federal student loans. 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.

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.