The student loan crisis is a complex issue with multiple underlying causes. Rising college costs, increased student borrowing, complicated repayment options and a lack of adequate oversight have all contributed to the problem.

Responsibility for this crisis is shared by several stakeholders:

• Federal and state governments
• Educational institutions
• Student loan servicers
• Private lenders
• Individual borrowers and their parents (who may not fully grasp the long-term implications of their loans)

Colleges have raised tuition faster than inflation, and government grants have failed to keep pace with increases in college costs, pushing more costs onto students and their families. Loan servicers and lenders have also been criticized for misleading practices, and many borrowers lack access to sufficient financial education before taking on debt.

Solving the student loan problem requires a comprehensive strategy, not a single solution. Addressing the problem will require a multifaceted approach involving policy reforms, simplifying the student loan programs, and better regulation of college costs and lending practices. Additionally, increasing financial literacy can help students make more informed decisions about borrowing and repayment.

Ultimately, understanding the root causes of the student loan crisis is key to developing effective and sustainable solutions.

The Scope Of The Student Loan Problem

People perceive the growth in student loan debt as a sign of a problem.

Here are the key student loan debt statistics as of the end of last year:

• Total Student Loan Debt: $1.76 Trillion
• Number Of Student Loan Borrowers: 43.2 Million Borrowers
• Total Federal Student Loan Debt: $1.60 Trillion
• Total Private Student Loan Debt: $130 Billion
• Average Federal Student Loan Debt Per Borrower: $37,088
• Median Federal Student Loan Debt Per Borrower: $19,281

Student loans are the second-largest category of household debt, second only to mortgage debt. Student loan debt exceeds outstanding auto loans and credit card debt.

Most college graduates start their careers saddled with tens of thousands of dollars in debt, which can take a decade or longer to repay. The financial burden of student loans can delay major milestones like buying a home, starting a family, or saving for retirement.

The root of the issue may not be the existence of student loans themselves, but rather a college completion problem. The vast majority of college graduates are able to repay their student loans.

Undergraduate students who leave school without finishing a degree are four times more likely to default on their loans than those who graduate. In fact, three-quarters of all defaults are from borrowers who dropped out and did not earn a degree, leaving them with debt but not the credentials needed to boost their earnings and repay it.

Default rates remain stubbornly high, even with income-driven repayment plans, as many borrowers have trouble understanding and navigating the repayment plans.  

Still, student loan debt is less widespread than other forms of debt. Only 21.7% of families have student loan debt, while 45.2% carry credit card balances, 40.9% have mortgages, and 34.7% owe on auto loans.

In recent years, new student loan borrowing has declined, with total annual federal student loan debt dropping from its peak of $106 billion in 2011-2012 to less than $80 billion per year. This trend is partly due to fewer borrowers and a decline in the average loan amount for most types of loans, except for PLUS loans.

Nonetheless, the total student loan balance continues to grow, as new loans are taken out each year while old loans are repaid slowly over decades.

Related: Find more student loan debt statistics here.

Impact Of Student Loan Debt

Despite concerns about the broader economic impact of student loan debt, annual student loan payments represent a small fraction of the U.S. GDP. However, the burden on individual borrowers can be substantial, as student loan payments often take precedence over other financial priorities, like paying off consumer debt or building savings. Although the typical student loan payment is lower than a typical car payment, it can still strain the finances of many households.

The impact of student loan debt is not uniform across all demographics. Low-income, first-generation college students, independent students, and borrowers who are Black, Hispanic or Native American are more likely to borrow larger amounts and face greater difficulty repaying their loans. Female graduates are also more likely to have student loan debt and typically earn less after graduation, making repayment more challenging.

When a borrower struggles to repay their student loans, the student loan debt may persist into old age, with senior citizens far more likely to be in default than younger borrowers. According to the Government Accountability Office (GAO), 37% of borrowers aged 65 and older and 54% of those aged 75 and older are in default. The federal government can even garnish Social Security benefits to repay defaulted loans, which is particularly harsh for seniors who rely on these funds for essentials like food and medicine. This practice is both financially harmful and ethically questionable.

Ultimately, the burden of student loan debt increases financial stress and can harm borrowers’ productivity and overall well-being. Addressing the student loan issue requires a nuanced approach, focusing on college completion, improved loan servicing, better financial education, and targeted policy reforms to alleviate the strain on the most vulnerable borrowers.

Here’s a breakdown of who bears responsibility for the student loan problem.

The Federal Government

Over 92% of all student loans are federal, making the U.S. government the dominant player in the student loan market and a central contributor to the current debt crisis. While the federal loan system was designed to make higher education more accessible, it has also led to a significant increase in student debt, with unintended and damaging consequences for many borrowers.

Federal student loans have several characteristics that resemble predatory lending practices. These include granting loans without adequate assessment of a borrower’s ability to repay, high interest rates and fees, interest capitalization, negative amortization, and inadequate disclosures.

For example, unlike private lenders, the federal government does not evaluate the borrower’s debt-to-income ratio or potential future earnings. This makes it easy for students to borrow large sums, often beyond what they can reasonably expect to repay after graduation.

Federal student loans lack many standard consumer protections that apply to other types of loans. For instance:

• No Statute of Limitations: Federal student loans do not expire, meaning the debt can follow borrowers for life.
• No Defense of Infancy: Even borrowers who took out loans as minors cannot discharge their debt based on age.
• Aggressive Collection Powers: The federal government has powerful tools for debt collection, such as garnishing wages, seizing tax refunds, and even withholding Social Security disability and retirement benefit payments. These measures can be devastating, especially for older borrowers who depend on these benefits for basic needs like food and medication.
• High Collection Charges: When a borrower defaults, as much as a fifth of the student loan payment is siphoned off to cover collection charges before the rest is applied to interest and the student loan balance. This slows the repayment trajectory considerably, sustaining a high level of debt.

The Parent PLUS Loan and Grad PLUS Loan programs allow for virtually unlimited borrowing, with the only restriction being the total cost of attendance minus other financial aid. The credit checks for these loans are minimal, considering only past credit issues without assessing future repayment ability.

"This creates a moral hazard for students and colleges, enabling families to borrow freely without facing immediate consequences, which in turn drives up the amount of debt."

Federal student loan repayment plans are notoriously complex. While income-driven repayment (IDR) options are designed to make student loans more affordable by basing monthly payments on the borrower’s income rather than the amount owed, they are often confusing and difficult to navigate.

Many borrowers struggle to select the best repayment plan for their situation, missing out on opportunities to lower their payments, reduce interest, or qualify for loan forgiveness. The complexity of the system contributes to missed payments, loan delinquency, and defaults.

For example, over 40% of borrowers are enrolled in the Standard repayment plan, which may cost them more than an income-driven repayment plan.

In IDR plans, borrowers may find that their monthly payments are less than the accruing interest, causing the total loan balance to increase — a phenomenon known as negative amortization. While remaining debt may be forgiven after 20 or 25 years, the system essentially provides a retroactive grant for over-borrowing, creating long-term financial instability for many.

Policymakers have prioritized student loans over grants as a way to pay for higher education because loans are less expensive to the government in the short term. Government grants have failed to keep pace with increases in college costs, shifting more of the burden of paying for college to students and their families.

Student loans are the only form of financial aid (if you call it that) that demonstrates any degree of elasticity, causing debt at graduation to grow faster than inflation. 

Colleges And Universities

College costs have skyrocketed, far outpacing inflation and wage growth. Colleges have continued to increase tuition, knowing that students have access to federal loans to cover rising costs.

Tuition and fees at public and private non-profit 4-year colleges have increased more than 20-fold over the past 50 years. Even after adjusting for inflation, college costs have more than tripled, putting higher education increasingly out of reach for many families.

One major factor driving tuition hikes is the feast-famine cycle of state funding for public colleges and universities. When states face budget shortfalls, they often reduce funding for higher education, forcing public colleges to compensate by raising tuition and fees.

This shifts more of the financial burden onto students and families, leading to a surge in student borrowing. As a result, students are increasingly reliant on federal loans to bridge the gap between the cost of attendance and their ability to pay.

In addition to rising costs, some colleges aggressively market their programs to low-income and vulnerable populations, making promises of high-paying jobs that often fail to materialize. These students, lured in by the prospect of upward mobility, frequently end up with substantial debt but no degree. Without the increased earning potential that a college degree typically provides, they struggle to repay their loans, making them much more likely to default.

Students who borrow heavily but do not complete their degrees are at particularly high risk. They face larger debts relative to the value of their education, leading to financial strain and increased likelihood of default. For many borrowers, this can become a lifelong financial burden, affecting their ability to buy a home, start a family, or save for retirement.

Borrowers (And Their Parents)

Many students rely on student loans to cover tuition, fees, and living expenses. However, some borrow more than what they need to pay the college bills, treating student loans as though they are free money. But, student loans have to be repaid, usually with interest.

The complexity of the system is also a problem, because borrowers don't understand how much they owe or how to track their loan balances.

This confusion often results in underestimating the total debt and the cost of repayment. The lack of transparency and clear communication can leave borrowers overwhelmed and ill-prepared to manage their debt.

Some college students borrow more than they can realistically afford to repay, fueled by unrealistic expectations about their future income. They assume that a college degree will automatically lead to high-paying jobs, but this is not always the case.

This overconfidence can lead to financial distress, especially if their actual post-graduation earnings are lower than expected. Additionally, there is a growing element of moral hazard, where some borrowers believe that their loans may eventually be forgiven or that they will not be held fully responsible for repaying the debt.

Many borrowers choose repayment plans that extend the term of the loan, opting for lower monthly payments without fully understanding the implications. While a longer repayment term may reduce the monthly student loan payment, providing short-term relief, it significantly increases the total interest paid over the life of the loan. In many cases, borrowers end up paying far more than the original amount borrowed, extending their financial burden for years or even decades.

One of the most significant issues is the lack of financial literacy among college students. Many do not fully grasp the terms of their loans or the long-term impact of taking on significant debt to pay for college.

Financial counseling, if provided at all, is often insufficient or poorly timed. This lack of education can lead to overborrowing and difficulties in managing debt, setting students up for financial strain after graduation.

Loan Servicers

Loan servicers also contribute to the problem by lacking transparency in their advice to borrowers. Unlike fiduciaries, loan servicers are not required to prioritize the options that are in the borrower's best interests, and this has led to widespread criticism.

Loan servicers have been criticized for providing inaccurate or misleading information, which complicates the already confusing repayment process. Instead of offering options that could reduce the borrower’s long-term debt burden, servicers often fail to provide clear explanations of repayment plans and their eligibility requirements. Many borrowers report difficulties enrolling in income-driven repayment (IDR) plans, often because they receive conflicting advice or encounter bureaucratic hurdles.

For example, we conducted a survey of student loan borrowers and only about two-thirds were able to understand their student loan repayment plan options:

Loan servicers have been accused of steering borrowers to forbearance instead of income-driven repayment plans. A forbearance allows the borrower to temporarily pause payments. However, unpaid interest continues to accrue, causing the loan balance to grow. Borrowers are left with a higher loan balance than they started with, digging them into a deeper hole.

Solutions To The Student Loan Problem

There are several solutions that can reduce reliance on student loan debt and make student loans easier to repay.

Expand Grant Aid For Low-Income Students

The federal government should replace loans with grants in the financial aid packages of financially vulnerable students, such as low-income students and current/former foster youth.

A significant increase in the Pell Grant, potentially doubling or tripling the current average amount, would be a critical first step. This increase should be implemented immediately and indexed to inflation to maintain its value over time.

Eligibility should be tied to students from families earning up to 150% of the federal poverty line, ensuring targeted aid without expanding eligibility unnecessarily.

Simplify The Federal Student Loan System

The current system is overly complex, with multiple types of loans and repayment plans, making it difficult for borrowers to make informed choices.

Consolidating the options into two main repayment plans would streamline the process: standard repayment (level payments with a 10-year term) and income-based repayment (10% of the excess of income over 150% of the poverty line, with the remaining debt forgiven after 20 years of payments).

Income-based repayment is intended to provide a safety net for borrowers whose debt exceeds their income.

Implement Sensible Loan Limits

Student loan borrowing limits should be set based on the borrower’s future earning potential, rather than the cost of attendance alone. 

Aggregate borrowing should be capped at no more than the expected annual post-graduation income, ensuring that borrowers can reasonably expect to repay their loans within a decade. This would help prevent over-borrowing and reduce default risk.

Annual loan limits should be derived from the aggregate limits.

Eliminate the PLUS Loan Program

The PLUS loan program for parents and graduate students allows borrowing beyond reasonable limits, often leading to excessive debt burdens. Eliminating this program and adjusting interest rates on the Federal Direct Stafford Loan to maintain revenue neutrality would help contain borrowing and focus resources on need-based aid.

Enhance Financial Literacy Education

Requiring comprehensive financial literacy training before students take out loans can help ensure they understand the long-term impact of borrowing. Personalized counseling should be provided, tailored to each student’s financial situation and career plans.

Regular, standardized monthly statements should also be sent during college, keeping borrowers informed about their loan status and the growth of their debt. Increasing awareness of the impact of student loan debt will help borrowers exercise restraint.

Standardize Loan Disclosures

Federal student loans should adopt the same disclosure standards as private loans, offering uniform transparency. 

This would provide borrowers with a clearer understanding of the terms, risks, and potential costs associated with their loans, regardless of the lender.

Targeted Loan Forgiveness

Student loan forgiveness should be targeted and needs-based, focusing on borrowers who are truly unable to repay their debt. Priority should be given to:

• Low-income borrowers struggling with repayment.
• Senior Citizens, particularly those whose Social Security benefits are at risk of garnishment.
• Borrowers in essential but low-paying professions, such as public service or teaching in underserved areas.

Improve College Completion Rates

A key factor in student loan default is the failure to reach the finish line. Students who do not graduate are significantly more likely to struggle with loan repayment.

Policies that focus on increasing college retention and completion rates, such as enhanced academic support and advising, can help more students earn a degree and improve their ability to repay loans.

Don't Miss These Other Stories:

How much your student loan interest rate really matter when it comes to repaying a student loan? What is the impact of interest rates on loan payments?

The truth is: not that much.

One of the most popular "alternatives" to blanket student loan forgiveness has been the argument that the federal student loan interest rate should be set to 0%. But given the wide array of student loan forgiveness programs and other assistance - does your student loan interest rate really matter?

Let's look at how the interest rate impacts your student loans.

Related: Utilize Our Free Student Loan Calculator To Check Your Loan Payment Amount

Don't Double My Rate

Back in 2006, the Democrats included a pledge to slash student loan interest rates in half as part of their “Six for ‘06” mid-term election campaign promises. When it came time to implement this pledge, they limited it to just subsidized Federal Stafford loans for undergraduate students and phased in the interest rate reduction. They cut the interest rates from 6.8% over a four-year period, to 6.0% then 5.6% then 4.5% and last to 3.4%. 

The legislation was set to sunset in 2012, returning the interest rate to 6.8%. This led to the “Don’t Double My Rate” campaign. After all, if student loan rates were a winning issue for one election, why not use the issue for another election?

Some borrowers reacted to the prospect of a doubling of the interest rates on new student loans by saying that they could not afford to have their student loan payments double.

But, doubling the interest rate on a student loan does not double the monthly student loan payments. 

Doubling the interest rate on a federal student loan increases the monthly loan payment by only about 10% to 25% on a 10-year term. For this particular situation, an increase in the interest rate from 3.4% to 6.8%, the loan payments would have increased by 17% assuming a 10-year repayment term.

Impact Of Student Loan Interest On Payments

Like most loans, the monthly loan payment is applied first to interest and last to principal. Interest starts off as a big share of the monthly loan payment in the first years of repayment. But, as you make progress in paying down the debt, interest represents a smaller share of each month’s loan payment.

For example, a $10,000 loan at 5% interest with a 10-year repayment term has a monthly payment of $106.07. Of the first month’s payment, $41.67, or about 39%, is applied to the new interest that has accrued. By the end of the fifth year, the interest portion of the monthly loan payment has dropped to $23.76, or about 22%. By the last year of the loan, the interest has dropped to less than 5% of the monthly loan payment, decreasing to less than 0.5% of the last payment.

Averaged across the entire repayment term, however, interest is just 21% of the monthly loan payments.

For the typical range of interest rates on federal student loans, interest represents only about 10% to 20% of the monthly loan payment on a 10-year term.

On a 25-year term, interest represents about 25% to 40% of the monthly student loan payment.  

Student loan payments are applied first to the interest that has accrued since the last payment, second to the principal balance of the loan. So, the lower monthly student loan payment from a longer repayment term means that progress in paying down the loan balance is slowed, since less is applied to the principal balance. More of each payment is applied to interest, since the interest portion of the loan payment does not change. The total interest paid over the life of the loan is also higher.

Related: How Much Money Does The Government Profit On Student Loans

Impact Of The Student Loan Interest Deduction

The cost of student loan interest is offset somewhat by the student loan interest deduction. Up to $2,500 in interest paid on federal student loans and most private student loans can be deducted on the borrower’s or cosigner’s federal income tax returns. It is taken as an above-the-line exclusion from income, so the student loan interest deduction can be claimed even if the taxpayer does not itemize. 

The deduction starts phasing out at $70,000 and $145,000 in income for single and joint filers, and is fully phased out at $85,000 and $175,000. It is not available to married borrowers who file tax returns as married filing separately.

Based on IRS Statistics of Income data, 12.7 million taxpayers claimed the student loan interest deduction in 2019, a total of $14.1 billion. That works out to an average of $1,112 per taxpayer. Since the 22% tax bracket is the maximum tax bracket eligible for the full student loan interest deduction, that means the average taxpayer saved up to $245 on their federal income tax return. The maximum potential savings was $550 if the borrower paid $2,500 in interest and was in the 22% tax bracket.

Borrowers who qualified for the payment pause and interest waiver during the pandemic may have had little or no interest eligible for the student loan interest deduction from 2020 through 2023. So, the IRS Statistics of Income reports for these years, which are not yet available, may be much lower than in 2019. 

Impact Of Income-Driven Repayment Plans

Given that income-driven repayment plans set the monthly loan payment as a percentage of your discretionary income, interest does not play into the affordability of repaying your student loans under these plans. 

Especially considering that, at the end of the repayment term, any remaining balance is forgiven. And with new plans like SAVE, any interest accrued beyond the monthly payment is forgiven.

Considering that upwards of 50% of student loan borrowers utilize income driven repayment plans, the interest rate on these student loans is moot.

The Impact Of Interest On The Affordability Of Student Loan Debt

The most significant problem with student loan affordability is the amount of debt, not the interest.

Of course, if you stretch out the repayment term as long as possible, you will pay more total interest over the life of the loan. Doubling the repayment term more than doubles the total interest paid over the life of the loan. A longer repayment term sustains the loan balance at a higher level by reducing the portion of each payment that is applied to the principal balance of the loan. It also charges interest for a longer period of time.

But, regardless of the interest rate and repayment term, you still have to repay the amount borrowed.

Even if the interest rate were permanently set at zero, you’d still have to repay the loan’s principal.

Government grants have not kept pace with increases in college costs. This shifts the burden of paying for college from the federal and state government to the families. Since family income has been flat for decades, families do not have more money to pay for college costs. They are forced to choose between sending their children to lower-cost colleges, such as from private colleges to public colleges and 4-year colleges to 2-year colleges, or borrowing more to pay for the higher college costs.

As the average amount of debt at graduation has increased, more students are graduating with an unaffordable amount of student loan debt each year.

If total student loan debt at graduation exceeds the borrower’s annual income, they will struggle to afford the monthly loan payments on a 10-year repayment term. They’ll have to choose a longer repayment term, such as extended repayment or income-driven repayment.

President Trump generally does not support student loan forgiveness and would likely seek an end to some student loan forgiveness programs. But can the President claw back student loan forgiveness that has already been granted?

It's sparked a lot of concern in recent weeks, especially as President Biden continued to propose new student loan forgiveness plans and already has set a record during his presidency for the most student loans forgiven.

As of November 2024, President Biden has provided $175 billion in student loan forgiveness for 4.6 million borrowers, more than any previous president.

For borrowers that have already received forgiveness, the question looms:

Could Trump claw back student loan forgiveness that has already been granted? The answer is generally no.

Let's break it down and learn why past loan forgiveness is likely protected, but future loan forgiveness could be in jeopardy.

Related: Every Student Loan Forgiveness Program That Exists Today

President Trump's Position On Student Loan Forgiveness

During President Trump’s first term, his administration proposed eliminating the Public Service Loan Forgiveness (PSLF) program. This was reflected in the annual education appendices of the President’s budgets for fiscal years 2018, 2019, 2020 and 2021.

For example, the FY2021 budget sought to replace the existing Income-Driven Repayment (IDR) plans with a new Single IDR plan that would be ineligible for PSLF. The FY2021 budget described the proposed Single IDR plan as a streamlined repayment option intended to reduce complexity.

“The 2021 Budget would replace the five current Income Driven repayment (IDR) plans with one new Single IDR plan to make choosing a repayment plan less complex. The new IDR plan would become the only income-driven repayment plan for borrowers who originate their first loan on or after July 1, 2021, with an exception for students who borrowed their first loans prior to July 1, 2021 and who are borrowing to complete their current course of study  The Single IDR plan would: cap payments at 12.5 percent of discretionary monthly income while eliminating the standard repayment cap; limit loan payments to 15 years for borrowers with undergraduate debt only and 30 years for borrowers with any graduate debt—any remaining amounts owed after these repayment periods would be forgiven; calculate payments for married borrowers filing separately on the combined household Adjusted Gross Income; and eliminate Public Service Loan Forgiveness.”

Importantly, the budget proposal noted that existing borrowers would be grandfathered in, allowing those who borrowed prior to July 1, 2021, to continue accessing the original IDR plans and PSLF.  

“As with the Single IDR plan, these policies would apply to loans originated on or after July 1, 2021, with an exception for students continuing to borrow to complete their current course of study.”

The language in the previous budgets was substantially similar.

The repeated efforts to eliminate PSLF were unsuccessful, primarily because Congress created these programs through legislation, and only Congress has the authority to repeal them. This highlights the limits of executive power in altering statutory programs.

In addition to budget proposals, President Trump took executive action on student loans.  On August 21, 2019, he signed an executive memorandum that forgive the federal student loan debt of 25,000 disabled American veterans and established a data match between U.S. Department of Education and the Department of Veterans Affairs to streamline future student loan discharges for disabled veterans.  

Following the U.S. Supreme Court decision in Biden v. Nebraska (600 U.S. 477) on June 30, 2023, which blocked President Biden’s broad student loan forgiveness plan, the Trump campaign issued a press release on July 6, 2023 praising the ruling.

“The U.S. Supreme Court handed down massive wins for the American people — halting Joe Biden’s unconstitutional student loan gimmick, restoring fairness to the college admissions process, and applying the strongest safeguards to First Amendment rights in a generation,

One thing is clear: these wins were only made possible through President Trump’s strong nomination of three distinguished and courageous jurists to the Supreme Court.”

While there are no student loan proposals on the Trump campaign website, his remarks during the September 10, 2024 Presidential Debate criticized President Biden’s efforts, calling them “a total catastrophe.” He argued that Biden’s plan misled borrowers with false hopes of debt relief, leading to frustration and disappointment among students who expected their loans to be forgiven.

“When they said they're going to get student loans terminated and it ended up being a total catastrophe. The student loans -- and then her I think probably her boss, if you call him a boss, he spends all his time on the beach, but look, her boss went out and said we'll do it again, we'll do it a different way. He went out, got rejected again by the Supreme Court. So all these students got taunted with this whole thing about — this whole idea. And how unfair that would have been. Part of the reason they lost. To the millions and millions of people that had to pay off their student loans. They didn't get it for free.
…
They didn’t even come close to getting student loans. They taunted young people and a lot of other people that had loans. They can never get this approved.”

The Heritage Foundation’s Project 2025, although not formally endorsed by President Trump, contains policy recommendations that align with many of his administration’s priorities. Note that Lindsey M. Burke, author of the Department of Education chapter, has no known connection to the Trump administration. 

Here are a few key excerpts from the Department of Education chapter concerning student loan forgiveness:

“The new Administration must end abuses in the loan forgiveness programs. Borrowers should be expected to repay their loans.”

“Effective July 1, 2023, the department promulgated final regulations addressing loan forgiveness under the HEA’s provisions for borrower defense to repayment (“BDR”), closed school loan discharge (“CSLD”), and public service loan forgiveness (“PSLF”). … Acting outside of statutory authority, the current Administration has drastically expanded BDR, CSLD, and PSLF loan forgiveness without clear congressional authorization at a tremendous cost to the taxpayers, with estimates ranging from $85.1 to $120 billion. The new Administration must quickly commence negotiated rulemaking and propose that the department rescind these regulations.”

“While income-driven repayment (IDR) of student loans is a superior approach relative to fixed payment plans, the number of IDR plans has proliferated beyond reason. And recent IDR plans are so generous that they require no or only token repayment from many students. The Secretary should phase out all existing IDR plans by making new loans (including consolidation loans) ineligible and should implement a new IDR plan. The new plan should have an income exemption equal to the poverty line and require payments of 10 percent of income above the exemption. If new legislation is possible, there should be no loan forgiveness, but if not, existing law would require forgiving any remaining balance after 25 years.”

“The new Administration must end the prior Administration’s abuse of the agency’s payment pause and HEA loan forgiveness programs, including borrower defense to repayment, closed school discharge, and Public Service Loan Forgiveness.”

“Consolidate all federal loan programs into one new program that a) utilizes income-driven repayment, b) includes no interest rate subsidies or loan forgiveness, c) includes annual and aggregate limits on borrowing, and d) includes skin in the game to hold colleges accountable.”

“The Public Service Loan Forgiveness program, which prioritizes government and public sector work over private sector employment, should be terminated.”

“Further, the next Administration should propose that Congress amend the HEA to remove the department’s authority to forgive loans based on borrower defense to repayment; instead, the department should be authorized to discharge loans only in instances where clear and convincing evidence exists to demonstrate that an educational institution engaged in fraud toward a borrower in connection with his or her enrollment in the institution and the student’s educational program or activity at the institution.”

“End time-based and occupation-based student loan forgiveness. A low estimate suggests ending current student loan forgiveness schemes would save taxpayers $370 billion.”

Can The President Revoke Previous Loan Forgiveness?

Could a future President claw back forgiveness that has already been provided? 

No, the President cannot retroactively revoke student loan forgiveness once it has been finalized.

Once the federal government discharges a borrower’s debt and the borrower has received official notification, the forgiveness is considered permanent and final. Although the eligibility criteria for future borrowers can be changed, forgiveness that has already been provided is legally binding and typically irreversible.

Legal Precedents And Court Rulings

Historically, courts have treated student loan forgiveness as sacrosanct and protected from retroactive reversal.

For instance, in the June 24, 2024 ruling in Alaska v. U.S. (Case No. 24-1057-DDC-ADM) concerning the SAVE repayment plan, the U.S. District Court for the District of Kansas described student loan forgiveness as having an “irreversible impact.”

The court cited the Eighth Circuit’s decision in Nebraska v. Biden, noting that the HEROES Act forgiveness posed irreparable harm “considering the irreversible impact the Secretary’s debt forgiveness action would have.” (Nebraska v. Biden, 52 F.4th at 1045-47, rev’g 636 F. Supp. 3d 991 (E.D. Mo. 2022))

The court used this argument to justify an injunction, emphasizing that once forgiveness is granted, it cannot be undone. The court said that you “cannot unscramble this egg...” 

Similarly, in a ruling in Missouri v. Biden (Case No. 4:24-cv-00520-JAR), decided on the same day, the U.S. District Court for the Eastern District of Missouri refused to reverse any forgiveness already granted. Instead, the court limited its injunction to prevent further loan forgiveness under the disputed Final Rule’s SAVE repayment plan, reinforcing the notion that forgiveness, once provided, cannot be revoked retroactively.

Legislative And Contractual Protections

The federal government also generally does not attempt to claw back forgiveness once granted, and retroactively changing the terms of forgiveness would likely face significant legal challenges. If Congress were to pass a law repealing a forgiveness program like the Public Service Loan Forgiveness (PSLF), existing borrowers would typically be grandfathered in. Changes would apply only to “new borrowers” — defined as individuals who, on the specified date, have no outstanding federal student loan balance.

Two notable examples illustrate this approach:

• The Health Care and Education Reconciliation Act of 2010 (PL 111-152) modified the terms of the Income-Based Repayment (IBR) for new borrowers on and after July 1, 2024. It reduced the percentage of discretionary income from 15% to 10% and shortened the forgiveness term from 25 years to 20 years. [20 USC 1098e(e)]
  
• The Higher Education Amendments of 1998 (P.L. 105-244) restricted Teacher Loan Forgiveness to new borrowers as of October 1, 1998. [20 USC 1087j(b)]
  

These examples show that changes to forgiveness programs have historically been applied prospectively, not retroactively, to respect the contractual agreements already in place.

Due Process And Breach Of Contract

Retroactively removing loan forgiveness would likely violate due process and could be challenged in court under the principle of promissory estoppel, which prevents the government from revoking a promise that borrowers have relied upon. It would also likely be considered a breach of contract since all Federal loan borrowers sign a contract for the loan.

The Master Promissory Note (MPN), which borrowers sign when taking out federal student loans, outlines the specific terms and conditions under which loans may be forgiven or discharged. It explicitly references the Higher Education Act of 1965, providing a legal basis for forgiveness programs.

Key provisions in the MPN include:

• Under the REPAYE Plan, any remaining loan amount will be forgiven after you have made the equivalent of either 20 years of qualifying monthly payments over a period of at least 20 years (if all of the loans you are repaying under the plan were obtained for undergraduate study) or 25 years of qualifying payments over a period of at least 25 years (if any of the loans you are repaying under the plan were obtained for graduate or professional study).
• Under the PAYE Plan, if your loan is not repaid in full after you have made the equivalent of 20 years of qualifying monthly payments over a period of at least 20 years, any remaining loan amount will be forgiven.
  
• Under the IBR Plan, if your loan is not repaid in full after you have made the equivalent of 25 years of qualifying monthly payments over a period of at least 25 years, any remaining loan amount will be forgiven.
  
• Under the ICR Plan, if your loan is not repaid in full after you have made the equivalent of 25 years of qualifying monthly payments over a period of at least 25 years, any remaining loan amount will be forgiven.
  

The MPN also identifies conditions under which the loans may be discharged (forgiven), including the death discharge, total and permanent disability discharge, closed school discharge, false certification discharge, identity theft discharge, unpaid refund discharge, teacher loan forgiveness, public service loan forgiveness, and borrower defense to repayment.

Has Student Loan Forgiveness Ever Been Reversed?

In February 2024, a small number of borrowers experienced a reversal of loan forgiveness under the Public Service Loan Forgiveness (PSLF) program by MOHELA, a federal loan servicer. However, this was not a case of clawing back properly granted forgiveness; rather, the forgiveness had been granted in error due to incorrect information.

The reversal affected borrowers who had mistakenly been credited with qualifying payments they had not actually made. An audit by the U.S. Department of Education found discrepancies in the data, particularly involving incorrect dates on the borrowers’ PSLF employment certification forms. These errors resulted in borrowers receiving PSLF credit despite not meeting the eligibility requirements.

It is important to distinguish between correcting an error and a true clawback of forgiveness. In this instance, the forgiveness was reversed because it was mistakenly approved; the borrowers had not met the necessary requirements for PSLF at the time. In contrast, a clawback would involve revoking forgiveness that had been legitimately earned and granted under the applicable rules.

The federal government retains the authority to revoke loan discharges when a borrower is found to be ineligible based on the criteria in effect at the time of forgiveness. It could also revoke student loan forgiveness in cases of fraud.

This ensures that forgiveness programs are administered correctly and in accordance with the established guidelines, maintaining fairness for all borrowers who comply with the program’s requirements.

Student Loan Forgiveness Can Be Revoked For Future Borrowers

The federal government does have the authority to modify the requirements for student loan forgiveness and discharge, but these changes apply only to future borrowers. 

Once a loan has been forgiven under existing rules, it cannot be revoked retroactively.

However, eligibility criteria for new borrowers can be adjusted based on the method by which the forgiveness program was established.

Changes To Statutory Loan Forgiveness (Programs Passed by Congress)

If a loan forgiveness program was created through legislation, only Congress has the power to modify or revoke it. The President cannot unilaterally eliminate statutory forgiveness provisions via executive action. To modify these programs, Congress must pass a new law, requiring a majority vote in the U.S. House of Representatives and, typically, a super-majority vote (60 votes) in the U.S. Senate to overcome a filibuster.

There are exceptions, such as the use of a budget reconciliation bill, which can pass with a simple majority vote in the Senate. However, the Byrd Rule restricts the scope of such bills to provisions that have a direct impact on the federal budget, preventing non-budgetary policy changes. Additionally, changes to Senate procedures, such as eliminating the filibuster, could alter the legislative process.

Examples of statutory loan forgiveness programs include:

• Public Service Loan Forgiveness
• Teacher Loan Forgiveness
  
• Total and Permanent Disability Discharge
  
• Death Discharge
  
• Time-based forgiveness in Income-Contingent Repayment (ICR) and Income-Based Repayment (IBR)
  
• Borrower Defense to Repayment
  
• Closed School Discharge, Identity Theft Discharge, False Certification Discharge, and Unpaid Refund Discharge
  

Changes To Regulation-Based Loan Forgiveness (Programs Passed via Department of Education Processes)

When loan forgiveness programs are established through federal regulations, the U.S. Department of Education can amend or repeal these regulations. This process, however, can take up to a year due to the requirements of the rulemaking process. If new regulations are published in the Federal Register by November 1, they typically take effect on the following July 1. In some cases, the Secretary of Education may expedite implementation.

Congress also has the option to block existing regulations by passing a law, though this requires legislative action. (Congress can also block new regulations within 60 legislative days under the Congressional Review Act.)

Examples of regulation-based programs include:

• Pay-As-You-Earn Repayment (PAYE)
• Revised Pay-As-You-Earn Repayment (REPAYE)
  
• Saving on a Valuable Education (SAVE)
  

While Borrower Defense to Repayment was initially established by law, the specific rules and criteria have been shaped through regulations, making them subject to modification through the regulatory process.

Changes To Executive Order-Based Loan Forgiveness

If a forgiveness policy was created via an executive order, it can be modified or revoked by a subsequent executive order. However, executive orders cannot override loan forgiveness programs established by legislation or regulations.

An example of this is the bankruptcy discharge policy for student loans. Although the standard for undue hardship in the bankruptcy discharge of student loans is codified in the U.S. Bankruptcy Code (11 USC 523(a)(8)), additional criteria, such as the Brunner Test and the Totality of Circumstances Test, were developed by the courts. In 2023, the Biden administration implemented a policy to reduce the government’s opposition to bankruptcy discharge petitions in certain cases, such as when the cost of collection exceeds the expected recovery. 

This policy could be reversed by a future executive order, altering the government’s stance on bankruptcy discharges without changing the underlying law.

Related: Is Student Loan Forgiveness By Executive Order Legal?

Conclusion

In summary, once a borrower’s student loan has been discharged, the forgiveness is generally irrevocable.

Legal precedents, statutory frameworks, and contractual obligations outlined in the Master Promissory Note protect borrowers from retroactive changes.

While future legislation can modify forgiveness programs for new borrowers, existing recipients of forgiveness are typically shielded from any clawbacks or reversals.

According to a new report from John Burton Advocates for Youth (JBAY), College Cash Uncovered, there are significant discrepancies between colleges’ published cost of attendance (COA) budgets and the actual expenses students face. These discrepancies contribute to college affordability challenges and inadequate financial aid. This leaves some students with financial gaps of $10,000 or more.

John Burton Advocates for Youth (JBAY) is a nonprofit organization that focuses on improving the lives of youth who have experienced foster care or homelessness. They work on policy advocacy and providing resources to at-risk youth, including stable housing, education, healthcare and financial support. The organization tries to address higher education access, financial aid and foster youth transitions into adulthood.

What Is The Cost OF Attendance?

A college’s cost of attendance, or COA, is supposed to measure the total annual college costs for a student to attend the college. Each college may have a different cost of attendance.

The cost of attendance includes both direct and indirect costs. Direct costs are paid to the college, while indirect costs are not. The distinction does not matter much for families, since they have to pay both direct and indirect costs, and financial aid eligibility is based on the combination of direct and indirect costs. But, some colleges and trade groups emphasize just the direct costs, especially when trying to convince people that college costs have not increased.

The cost of attendance (sometimes called a student budget) includes allowances for the following costs.

• Tuition And Fees
  
• Housing And Food (also known as Room and Board): The housing allowance for college owned or operated housing must be based on the average or median housing charges, whichever is greater. The allowance for food must provide the equivalent of three meals a day.
  
• Books, Supplies, Course Materials, and Equipment: This includes an allowance for a personal computer, in addition to textbooks and educational materials.
  
• Transportation: The transportation allowance must cover the cost of commuting between school, home and work. The transportation allowance does not include the cost of buying a car, just the incremental cost of transportation.
  
• Personal Expenses: Personal expenses include laundry, clothing, toiletries and personal needs.
  
• Other Costs: Other costs can include dependent care costs, disability-related expenses, study abroad expenses and loan fees for federal loans but not private loans. It can also include the cost of professional licensing and certification and the cost of first-professional credentials. Dependent care costs include but are not limited to class time, study time, field work, internships and commuting time.
  

The cost of attendance is used to determine eligibility for need-based financial aid. Financial need is defined as the difference between the cost of attendance and the student aid index. The Student Aid Index (SAI) was previously known as the Expected Family Contribution (EFC).

Related: Financial Aid Calculator

What Are The Problems With The Cost Of Attendance Calculations?

The key issue is that some allowances in the cost of attendance differ from actual student expenses.

For example:

• Colleges tend to routinely underestimate allowances for textbooks and transportation.
• Some of the cost of attendance allowances are averages, as opposed to actual costs. Students from at-risk populations often have above-average costs.
• The accuracy of cost allowances is often unreliable. In many cases, colleges use outdated figures adjusted only by a standard inflation rate over the years, which fails to capture actual cost increases. At nearly a third of colleges, the non-tuition costs have not been adjusted for inflation at all. Additionally, allowances for off-campus housing often underestimate true costs, especially since rent is typically higher in college towns.

Furthermore, many expenses are omitted from the cost of attendance:

• Many fees are not included in the allowance for tuition and fees, such as technology fees, activity fees, athletic fees, orientation fees, health center fees, library fines, lab fees, transcript fees and graduation fees.
  
• Technology costs, such as computers, software and peripherals are often omitted from the cost of attendance.
  
• Allowances for transportation often omit the cost of parking, insurance and maintenance.
  
• Housing allowances often omit the cost of utilities (electricity, heating, telephone, internet), renter’s insurance and security deposits. There may also be fraternity and sorority dues.
  
• The cost of attendance also does not include the cost of health insurance, insurance deductibles, copays and over-the-count medicine.
  
• Colleges routinely omit allowances for dependent care and disability expenses. Students must know to ask for these allowances.
  

It's also important to point out that even the cost of tuition may not be finalized until after students have had to accept enrollment. Many colleges don't finalize their exact tuition costs until June or July of the year, depending on the fiscal calendar. And since college prices tend to rise 3-5% per year, this can also create inaccurate estimates.

The JBAY report points out that cost of attendance budgets often fail to consider regional variations and the unique needs of diverse student populations, such as childcare or disability-related costs.

This results in a misleading representation of the real financial burden on students.

Bad Cost Estimates Harm Students

The JBAY report identifies discrepancies between colleges’ published cost of attendance (COA) budgets and the actual expenses students face. Underestimating actual living costs makes college unaffordable for many students, especially those from at-risk populations with limited financial resources.

Discrepancies in Cost of Attendance (COA) Budgets

Many colleges significantly underestimate the actual expenses faced by students, particularly for low-income, foster youth and other vulnerable groups. There is a wide gap between the published cost of attendance figures and the true costs for housing, food and transportation, especially in high-cost regions. This discrepancy results in a much heavier financial burden than is reflected in the college’s official cost of attendance estimates. 

According to the report, over half of colleges use cost of attendance budgets that fail to account for the actual expenses, with underestimations sometimes exceeding $10,000 per year. Many students face food and housing insecurity and are unable to absorb discrepancies in the college cost of attendance, further exacerbating their financial hardships.

Disproportionate Impact On Vulnerable Students

The inaccurate cost of attendance estimates disproportionately harm low-income students, who often struggle to cover the true costs despite receiving financial aid. 

The standardized cost of attendance budgets fail to consider the unique circumstances of foster youth and students without family support, who lack access to parental housing during school breaks. The unmet need for former foster care students is nearly double that of their peers.

Additionally, students with children have substantially greater expenses than the costs included in the college’s student budget. These inaccurate estimates result in severe financial stress, making it difficult for these students to succeed and persist in their academic pursuits.

Lack Of Transparency In Calculating Non-Tuition Costs

Many colleges do not disclose how they calculate non-tuition costs within the cost of attendance budget, nor do they proactively inform students about the process for requesting an adjustment based on actual expenses.

This lack of transparency makes it difficult for students to appeal for a higher cost of attendance, even when their expenses exceed the college’s estimates. Additionally, there can be significant variations in non-tuition cost estimates among colleges in the same geographic region.

Inadequate Financial Aid

The underestimates of actual college costs lead to lower financial aid offers that do not meet the students’ actual financial need. 

The financial aid gaps make college unaffordable for many low-income and middle-income families, forcing them to work excessive hours, borrow from private student loan programs, and enroll part-time instead of full-time.

Ultimately, these financial pressures increase the likelihood that the students will drop out of college.

Key Recommendations

The JBAY report makes several recommendations for better aligning cost of attendance estimates with actual student expenses. This will help bridge financial gaps and support student success.

• Colleges need to improve the accuracy of cost of attendance calculations.
  
• The calculation of non-tuition expenses like housing, books and transportation must be standardized, with consideration of local and regional cost differences.
  
• Colleges must enhance the support for students needing financial aid adjustments and ensure that the adjustments reflect the student’s specific circumstances.
  
• Financial aid awards must be increased to cover the gap between the cost of attendance and the student’s ability to pay.
  
• The financial aid application and award process must be streamlined to avoid introducing barriers to college access and success.
  

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Strategic default is the plan to intentionally avoid paying your student loans.

In 2011, some protestors encouraged borrowers to refuse to repay their student loans as part of Occupy Wall Street. They said that if enough borrowers joined this protest, the lenders would have no choice but to cancel the student loan debt.

Few people participated, and even those that did only lasted for a month or two. Nobody went into default as part of this protest.

More recently, after the U.S. Supreme Court blocked President Biden’s broad student loan forgiveness plan, some student loan protestors are once again urging their fellow borrowers to intentionally default on their federal student loans as a form of debt disobedience.

And now, with student loan payments resuming, more borrowers are thinking about intentionally not paying their debt.

This kind of strategic default on federal student loans was a dumb idea then and it is a dumb idea now.

When a borrower defaults on their federal student loans, the only one hurt is the borrower, not the federal government. Borrowers can’t force the federal government to forgive their student loans by refusing the repay them. Borrowers have no leverage, not even if they act together as a collective.

Even if the borrowers had some leverage, the U.S. Department of Education does not have the legal authority to forgive student loans, just as it doesn’t have the authority to incarcerate defaulted borrowers. Only Congress has the ability to pass laws to forgive student loan debt.

Why Strategic Default For Student Loans Is A Bad Idea

The federal government has very strong powers to collect defaulted federal student loans. They will get their money, one way or another, and the borrower will end up paying the penalty. Here are some of the tools the government has at its disposal. 

• The federal government can garnish up to 15% of a defaulted borrower’s wages administratively, without a court order. The wage garnishment exceeds the amount a borrower would have paid under an income-driven repayment plan. 
• The federal government can offset federal income tax refunds and up to 15% of Social Security disability and retirement benefits.
• Collection charges of up to 20% may be deducted from every payment, slowing the repayment trajectory.
• The federal government can prevent renewal of professional licenses (including driver's licenses in some states, not just the licenses of doctors, nurses, dentists, pharmacists, social workers, teachers, accountants and attorneys).
• The borrower will be ineligible for FHA and VA mortgages, can't enlist in the U.S. Armed Forces, and will lose eligibility for further federal student aid.
• The federal government (and private attorneys acting on behalf of the federal government) can sue defaulted borrowers to collect the debt. With a court judgment against the borrower, they can garnish a greater amount, place liens on the borrower’s property and get a levy to seize money from the borrower’s bank and brokerage accounts.
• The federal government can also seize the borrower’s lottery winnings.
• The federal government will report the delinquencies and defaults to credit bureaus, making it very difficult for the borrower to get any credit (or, in some cases, to rent an apartment or get a job).  
• Federal student loans are almost impossible to discharge in bankruptcy, so this debt will never go away.

Some people argue that the federal government benefits financially when a borrower defaults, especially if the borrower is capable of repaying the debt, since the collection charges increase the amount recovered. 

The federal government sometimes will settle defaulted federal student loans, but only when the loans have been in default for a long time. Such settlements are always greater than the loan balance when the loans went into default.

These settlements merely forgive part of the interest or collection charges that have accumulated since then. For example, a typical student loan settlement will forgive half of the interest that accumulated since the loans went into default.

The settlement must also exceed the amount the federal government expects to collect in the future. Borrowers can never get a discount on their current loan balance by intentionally defaulting on the loans.

A Better Way to Protest

Frustrated borrowers should write to their members of Congress. If enough borrowers complain, it does have an impact, as it makes the policymakers worry about getting re-elected.

Refusing to repay your student loans, on the other hand, does not have an impact, as politicians don’t listen to deadbeats. 

Borrowers can also protest by paying off their debt more quickly by making larger payments, if they are able. That costs the federal government more money, by reducing the total interest paid over the life of the loan.

It also hurts the loan servicers who are paid a monthly servicing fee only until the loan is paid off. The federal government and the loan servicers make more money when a loan is repaid over time. If you want to protest a loan, make the lender to lose money. 

Borrowers can also take advantage of existing options for student loan forgiveness and discharge, if eligible, to get rid of their debt.

These types of student loan cancellation, which were previously authorized by Congress, include the closed school discharge, total and permanent disability discharge, identity theft discharge, borrower defense to repayment discharge, loan forgiveness for employees of federal agencies, Segal AmeriCorps Education Awards, National Health Service Corps Loan Repayment Program, Teacher Loan Forgiveness and Public Service Loan Forgiveness. 

There’s also forgiveness after a borrower has made 20 or 25 years of payments in an income-driven repayment plan. A lender who has no loans makes no money.

Related: Does The Government Profit Off Student Loans?

Options for Borrowers Who Are Unable to Repay Their Student Loans

If a borrower is struggling financially, there are several ways to continue a personal pause, although interest may continue to accrue.

For borrowers who are experiencing a short-term financial challenge, such as unemployment or medical/maternity leave, options include the economic hardship deferment, unemployment deferment and general forbearances.

Each of these options suspends the repayment obligation for up to a maximum of three years, typically in one-year increments. But, interest may continue to accrue and may be added to the loan balance if unpaid.

For a more long-term financial difficulty, there are the income-driven repayment plans, where the monthly payment will be zero if the borrower's income is less than 150% of the poverty line. With the SAVE repayment plan, the threshold increases to 225% of the poverty line (assuming it survives the court cases).

The excess of accrued interest above the calculated payment will be forgiven if the borrower makes the required payment, including a zero payment.

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