The Federal Student Loan Program is no Longer Viable. What to do about It.

Alan Collinge
6 min readSep 14, 2023

It must be ended and replaced.

Updated 1/13/2024

Before the pandemic, the Brookings Institute estimated that student loan defaults for the Class of 2004 would reach 40%. This is double the default rate for subprime home mortgages. These borrowers, however, were borrowing less than a third (roughly $13,000) of what is borrowed today (roughly $39,000). Given only modest growth in wages since ‘04, it is no stretch to say that defaults for all current student loan borrowers were going to be at least 60–70% (if not higher)…before the pandemic.

In 2019, Education Secretary Betsy DeVos acknowledged that 75% of all federal student loan borrowers were “unable to pay down their loans”. Wayne Johnson, the Federal Student Aid Director, said that this was closer to 80% in the first months of 2020, and more recently claimed that 85% of all borrowers were never going to be able to repay their student loan debt.

Department of Education data from before the pandemic shows that more than half of all borrowers (58.9% when including $0 payers in Income Driven Repayment plans) weren’t paying at all. As of January 2024, with federal student loan repayment resumed the total percentage of non-payers is nearly 80%, and that is likely to rise over time.

Source: Department of Education Loan Status Report (Q4, 2023)

More disturbing: This is now more a problem for older Americans than younger. Over half of all borrowers are now over 35 years old, not under 35, and people over 50 with student loans now outnumber people under 25. For both of the older groups, they owe far more than their younger counterparts, despite having borrowed far less many years or decades ago.

Source: U.S. Department of Education (Q4 2020)

Equally disturbing: student loan debt in over a third of U.S. States now exceeds their state budgets. This is most prominent in historically red, conservative states. Georgia’s state budget is $48 Billion, for example. The people of Georgia, however, owe an astonishing $82 Billion in mostly federal student loan debt.

Analysis of the average student loan debt/borrower vs. average earnings for the various states yields a similar map. While student loan debt is not good in any of the states, southern, red states are being hit exceptionally hard.

Student Loan Debt Vs. State budgets
Student Loan Debt Vs. Earnings, By State

A default rate 3–4 times higher than the subprime rate. Most borrowers not paying. 85% of all borrowers underwater. Older borrowers outnumbering younger borrowers, and owing far more despite having borrowed far less. All before the pandemic. This is indisputable, clinching evidence of a totally, catastrophically failed lending system.

The 45 million borrowers have obviously inculcated this. They have had over 3 years of non-payment to reflect on the debt. They’ve seen trillions in economic stimulus (including $1 Trillion in PPP loans that don’t need to be repaid) thrown out to the country. Much of this stimulus has gone to millionaires, billionaires, and even colleges, who have never been in a stronger financial position than they are right now. Today, all the money student borrowers were saving due to the repayment pause has been taken back- and then some by inflation.

Not to mention: The borrowers have largely come to understand- viscerally if not intellectually- that the loans are a predatory scam. There simply are no loans from which bankruptcy rights, statutes of limitation, Truth-in-Lending laws, and other fundamental consumer protections have been removed. This wholesale stripping of rights has weaponized the lending system, and led to widespread, often life-long abuse of the borrowers at the hands of the colleges, lending companies, and especially the Department of Education, which fights tooth and nail to keep bankruptcy rights gone from its massively predatory cash cow. People know when they are being abused, and this is reflected in the repayment data.

Most weren’t paying before the pandemic, almost none are paying at the present time, and when the Biden Administration turns this rigor-mortised lending system back on October 1st, it will be surprising if even 20% were paying come Christmastime.

The damage this vicious predatory loan scam has caused the citizenry to date has been massive. The damage it is poised to inflict upon the nation is incalculable. The people will no longer tolerate it. The loans will not be paid. The lending system is finished.

Conservative Grover Norquist (who hilariously now fights to turn the lending program back on), once said that government should be small enough that if needed, it could be “taken to the bath, and drowned in the tub”. This is precisely what is needed for federal student loans.

The President should immediately suspend the lending program, and (with Congress) implement a temporary (1–2 year) direct funding plan for the colleges at significantly reduced funding levels. During this hiatus, the Department of Education, Congress, Executive Branch and other stakeholders (which must include/emphasize affected citizens) should develop and deploy a new funding model that maximizes educational attainment and minimizes cost. If loans are to be retained in such a model, they must have all of the standard consumer protections (i.e. bankruptcy rights, statutes of limitations, etc) as other commercial loans, and be free, or nearly free of interest, as originally intended when the Higher Education Act was passed in 1965.

Congress should repeal 11 USC 523(a)(8) entirely, and remove the essentially-impossible-to-prove criterion of “Undue Hardship” from consideration in bankruptcy proceedings for student loan borrowers. This will ensure that student loans are treated in the same, uniform manner, as all other loans.

Until such legislation is passed, the President should immediately order the Department of Education to suspend its “new” bankruptcy process, and instead simply stop opposing student loan borrowers’ Undue Hardship claims in bankruptcy court, “Undue Hardship” is sufficiently vague/ill-defined to justify this action.

For discharged debt, the colleges, collectively, should be compelled to reimburse the government for at least half of the amounts originally borrowed, with wealthier colleges assuming a proportional share of the financial burden.

Finally, the President should be prepared to invoke section 1082 of the Higher Education Act, and cancel federally owned student loans as deemed necessary, depending on the volume of bankruptcies that result.

President Biden can spend the next year pretending that the federal student loan system is viable, and preside over a painful, messy, probably civilly-unrestful unwinding. Or, he (or his successor) can toss this train wreck on the scrapheap of failed U.S. policy experiments, and spend (possibly) the next 5 years creating an efficient, fair, and uncorrupted higher education financing system that actually works.

Below are just a few examples of the tens of millions of citizens who have been decimated by this shameless, government profiteering. They are willing to be interviewed.

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Alan Collinge

I am Founder of StudentLoanJustice.Org, author of The Student Loan Scam (Beacon Press), and creator of the petition Change.Org/CancelStudentLoans