The story we still tell about student debt is wrong. It’s not a young person’s problem. The fastest-growing segment of borrowers is over 60, and roughly 452,000 of them are in default and receiving Social Security checks — checks that can be garnished by up to 15%, leaving a $750 monthly floor that was set decades ago and has never been adjusted for inflation. The number of borrowers 62 and older has jumped 71% since 2017, per the Consumer Financial Protection Bureau. Some of them are paying for their own degrees from twenty years ago. Some signed Parent PLUS loans for kids who couldn’t otherwise afford college. A lot of them assumed retirement would mean retirement.
It won’t, for them, because of how the system is built.
Americans currently owe $1.84 trillion in student loans, per the Federal Reserve’s Q4 2025 release — $1.69 trillion of it federal, the rest private. Forty-two point eight million people carry federal balances. The average federal borrower owes $39,633 as of December 2025 (Department of Education). About 9.57% of all student loans are 90+ days delinquent — up from 0.53% a year earlier, the steepest spike the Fed has ever measured for this category. Roughly one in four borrowers with payments due is behind on them. The on-ramp protections that softened the end of the COVID pause expired in late 2024, and the consequences arrived as advertised.
This is the second-largest category of consumer debt in the country, after mortgages. It is larger than all credit card debt combined. It exists nowhere else in the developed world at this scale, with these terms, with this little escape route. And that didn’t happen by accident.
How College Got So Expensive
The Pell Grant, when it was first fully funded in 1975, covered roughly three-quarters of the cost of attending a public four-year university (per NASFAA’s analysis — the Urban Institute argues the real figure was lower because of per-student caps, but the trajectory is uncontested). Today the maximum Pell Grant — $7,395 for the 2025-26 award year — covers 27 to 31% of the same cost basket. The award has gone up. The price has gone up faster.
Part of the reason is state disinvestment. Forty-four states still spend less per student in real terms than they did before the 2008 recession. When states pulled funding, public universities raised tuition to make up the difference, which they were politically free to do because federal loans were always there to fill the gap. The Bennett Hypothesis — Reagan-era Education Secretary William Bennett’s claim that federal aid drives tuition inflation — has been studied repeatedly by the Congressional Research Service, the GAO under two administrations, and by leading higher-ed economists. The evidence does not really support it as a primary driver. What is supported: state legislatures cut public-college funding, and the federal loan program absorbed the difference rather than fighting it.
The price problem isn’t a mystery. It’s a deliberate handoff.
How They Made the Debt Inescapable
Until 1976, student loans were dischargeable in bankruptcy like any other consumer debt. Then a Higher Education Act amendment made federal student loans non-dischargeable for the first five years of repayment. In 1990 the Crime Control Act extended that window to seven years. The Higher Education Amendments of 1998 eliminated the seven-year window entirely, making federal student loans permanently non-dischargeable. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act extended that same non-dischargeability to private student loans — which is the part of the timeline that gets quietly forgotten, because it’s the part where the banking industry got the same protection the government had given itself.
That 2005 change is the door that’s still closed. To discharge a student loan in bankruptcy today, borrowers have to clear an “undue hardship” standard that most courts apply via the Brunner test, which is functionally impossible to meet unless the borrower can prove a permanent, near-total inability to ever earn enough to repay. Child support is dischargeable in narrower circumstances. Tax debt is dischargeable in narrower circumstances. Federal criminal fines are dischargeable in narrower circumstances. Student loans are not.
The consequence is that the federal government can garnish wages (up to 15%), seize tax refunds, and garnish Social Security benefits — all without a court order — for as long as the borrower lives. Wage garnishment is resuming this summer for the roughly 5.3 million borrowers in default. The Social Security garnishment piece was paused in mid-2025 after public backlash, but the underlying legal authority hasn’t changed and the pause has no permanent end date.
The Industry That Lives Off This
Sallie Mae started in 1972 as a government-sponsored enterprise to make student loans more liquid. It was fully privatized by 2004. In 2014 it split, with the loan servicing piece becoming Navient. Navient later transferred most of its federal portfolio to MOHELA — the Missouri Higher Education Loan Authority, which is the same MOHELA whose lawsuit against the Biden administration’s broad forgiveness plan ended up at the Supreme Court. MOHELA, Nelnet, EdFinancial, Aidvantage, and a handful of others now handle the federal portfolio under government contracts. They are paid per loan, not per successful repayment, which creates an incentive structure that doesn’t match the borrower’s interests.
The Public Service Loan Forgiveness program was designed in 2007 to be the safety valve: ten years in public-sector or qualifying nonprofit work, and the remaining balance gets forgiven. For most of the program’s existence, that promise didn’t function. Servicers steered eligible borrowers into the wrong repayment plans, lost employment certification paperwork, and miscounted qualifying payments. As recently as 2018, the initial denial rate on PSLF applications was around 99%. The Biden administration’s PSLF Limited Waiver fixed a lot of those mechanical failures, but the original ten years of misdirection cost a generation of teachers, nurses, and public defenders the forgiveness they had structured their careers around.
Then there’s the for-profit college pipeline. Schools like the now-collapsed Corinthian Colleges and ITT Tech enrolled disproportionately low-income, first-generation, and military-affiliated students, charged tuition that exceeded public-university rates, and produced credentials that frequently didn’t translate into jobs. The federal “90/10 rule” required for-profit schools to get at least 10% of their revenue from non-federal sources, which they routinely satisfied by recruiting veterans, whose GI Bill benefits counted as “non-federal” for accounting purposes but were federal dollars by any honest reading. For-profit colleges enroll roughly 10% of students nationally but account for about half of all student loan defaults, per Brookings analysis of research by Adam Looney and Constantine Yannelis. When Corinthian and ITT collapsed, some defrauded borrowers got partial relief through Borrower Defense to Repayment. Most did not.
What Just Changed
The last twelve months have rewritten the rules.
The SAVE plan — the most affordable income-driven option in federal student loan history — is dead. The Trump administration reached a settlement with the State of Missouri in December 2025; the Eighth Circuit approved it in early 2026; the Department of Education is now moving the 7.5 million borrowers who had been parked in SAVE forbearance into other repayment plans through a 90-day window. Interest on those balances began accruing again in August 2025.
The replacement, created by the One Big Beautiful Bill Act and effective July 1, 2026, is the Repayment Assistance Plan. RAP charges 1 to 10% of adjusted gross income, with forgiveness after 30 years (SAVE had a 10-to-25-year track depending on balance). After July 1, 2026, new federal borrowers will have exactly two repayment options: standard and RAP. ICR and PAYE are being phased out by 2028. Grad PLUS loans — the program graduate and professional students relied on to cover costs above the standard borrowing caps — is eliminated for new borrowers. Annual borrowing for professional programs is capped at $50,000, with a $200,000 aggregate ceiling, which is well below the actual cost of medical, dental, and law school at most institutions. Parent PLUS loans no longer qualify for PSLF at all.
The PSLF program itself was rewritten by executive order in March 2025 and finalized as a Department of Education rule in October. Effective July 1, 2026, the Secretary of Education can disqualify any employer found to have “engaged in activities such that it has a substantial illegal purpose.” The administration’s announcement explicitly named two examples: employers that aid undocumented immigrants and those that provide gender-affirming medical care to minors. The cities of Boston, Chicago, San Francisco, and Albuquerque, the two largest teachers unions, AFSCME, and 21 state attorneys general have sued. The cases are pending.
And then on May 13, 2026 — yesterday — the administration announced a phased transfer of the federal student loan portfolio from the Department of Education to the Treasury Department. The Federal Student Aid office, which administers the portfolio, was cut from 1,433 staff to 777 over 2025. Treasury has no operational history administering income-driven repayment, forgiveness applications, or borrower-defense claims. What this means for borrowers in practice is genuinely unclear, and I’d be lying if I told you anyone confidently knows yet.
Everywhere Else Handles This Differently
Germany charges no tuition at public universities, full stop. Students cover their own living costs, often supplemented by federal BAföG grants and subsidized loans. Most graduates leave with no debt.
The UK charges roughly £9,250 a year for tuition, but the loan is repaid through the tax system as a percentage of income above a threshold. Outstanding balances are forgiven after 30 to 40 years depending on plan, and missed payments don’t damage your credit. Functionally, it’s a graduate tax.
Australia’s HECS-HELP system covers tuition upfront, and graduates repay through payroll withholding at 0 to 10% of income above an earnings threshold. The balance is indexed to inflation but otherwise carries no interest. If you never earn enough to cross the threshold, you never pay.
The Nordic countries — Sweden, Denmark, Norway, Finland — generally charge no tuition for residents, and several offer stipends on top to cover living costs.
None of these systems are perfect. The UK has had real debates about whether their setup distorts career incentives. Germany’s free tuition coexists with capacity constraints that route some students away from their preferred programs. Australia’s HECS balances have grown substantially during high-inflation periods because of the indexing. But the structural fact stands: every other wealthy country looked at financing higher education and chose a different option than the United States chose. None of them produce a $1.84 trillion debt overhang. None of them garnish retirees’ Social Security checks.
Where This Leaves Us
A few honest things first. College graduates still out-earn non-graduates by a substantial margin across their working lives, even after netting out debt service. The “is college worth it” debate is more interesting than the talking-point version. Free-college proposals have real tradeoffs — they subsidize the children of high earners alongside low-income students, and they don’t address whether colleges are teaching the right things. Forgiveness raises legitimate distributional questions, especially for the working Americans who never went to college and whose tax dollars would underwrite cancellation. These aren’t bad-faith arguments. They deserve to be taken seriously, and the better proposals on the table — bankruptcy access restoration, automatic enrollment in income-driven repayment, a real cap on tuition at federally-funded institutions, full Pell Grant restoration — try to take them seriously.
But here’s the part that doesn’t go away.
Germany picked an option. The UK picked an option. Australia picked an option. The Nordics picked an option. None of those options were the one we picked. And the consistent difference, when you look at the structure of the American system, is that someone is getting paid: the servicers paid per loan rather than per successful repayment, the for-profit colleges drawing 90% of their revenue from federal loans, the SLABS investors holding bundled private student debt, the banking industry that lobbied for the 2005 non-dischargeability extension and got it. The reason American student debt looks like American student debt is that there’s a financial sector built on it that has more political power than the borrowers do.
That’s the pattern of this whole series. It isn’t unique to student loans. The same shape showed up in healthcare — every other developed country picked a different option, and the difference is that someone here is getting paid. It showed up in housing — the zoning rules and the investment-firm purchasing aren’t accidents; somebody designed both, and somebody profits from both. Education is the third instance of the same pattern, and at this point it’s not really a coincidence. It’s a method.
The 26-year-old with $40,000 in loans who can’t get a mortgage, the 38-year-old finally buying a starter home a decade later than her parents did, the 64-year-old having 15% of her Social Security check garnished for a Parent PLUS loan she co-signed in 2003 — they’re not three separate problems. They’re the same problem at three different ages, and the people on the other side of it are the same people.
Even that's Odd 
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