We estimate that the resumption of student loan payments will result in only a 0.3 percentage point drag on GDP.
Student debt is not going to bankrupt the nation
Student debt sponsored by the government can be thought of either as a burden on taxpayers or as an investment in the future of the economy. Beginning in 2010, the federal government became the overwhelming source for funding and the administrator of student loans, replacing its traditional role as guarantor of loans that originated in the private sector. The government takeover of student lending was thought to be a more efficient and equitable system of loan origination and repayment, cutting out the middleman function of private banks. There is the debate over the cost to the taxpayer, and on a philosophical level, the nationalization of a profit-making (though government-guaranteed) enterprise. Detractors of the government takeover point to the relentless increase in student debt over the past 15 years and point to government involvement as facilitating its growth. We question that logic. As we’ll discuss, the amount of student debt amounts to a fraction of gross domestic product. The cost of college appears to have plateaued after large increases in the 1990s and 2000s before the government takeover. But most important, nearly half of student debt is owed by 10% of borrowers for their graduate work. These are the professionals who will be in position to repay the loans, either through their potential income or through public service.Don’t blame the freshmen!
Digging down into individual loans suggests misguided concerns over who is taking out the loans and what they are financing.Default rates are highest among borrowers with low balances.

How much federal aid are we talking about?
As of the second quarter, there was $1.8 trillion in student debt, of which about 92% is in federal loans. That $1.8 trillion is within an economy that generates $27 trillion in nominal gross domestic product each year. After peaking at 7.5% of nominal GDP in 2019, before the pandemic, student debt has dropped to 6.6% of total domestic output. Some of that decline can be attributed to the surge in GDP since the pandemic, but also to the recent decline in college enrollment and to decreased tuition costs.
How did we get to this point?
The increase in student debt is attributable to the increase in college costs, most of which occurred before the government takeover of student loans. According to the College Board, the average price of a private four-year college grew by 35% during the 10 year period between 1992 and 2002 and then by 26% from 2002 to 2012. The average price at a public four-year college grew by 37% in the 1990s and then by a whopping 69% during the 2000s. But since the 2012 takeover, the average price at private colleges has increased by only 5% while the average price of attending a public college has dropped by 1% after adjusting for inflation.
A drop in demand and increase in grants
The deceleration of college costs coincides with a drop in enrollment, which in our opinion signifies a decreased demand for higher education in recent years and perhaps the saturation of the education market. We point to two potential factors. First, the wave of demand for educating the children of baby boomers has aged out. And second, the paucity of real wage increases over the past decade has resulted in diminished returns on an investment in education compared to its elevated cost. College enrollments peaked in the 2010 and 2011 school years. Again, this was before the government takeover of student loans. In the 10 years since (and excluding the 2020 pandemic-related drop in enrollment), full-time undergraduate enrollments declined by 14%. Part-time enrollments of undergrads dropped by 9%. During the same period, enrollments in graduate programs increased by 7%.
