Key Takeaways

• According to a fact sheet published by the White House website, as of 2022, the combined amount of federal student loan debt in the United States is more than $1.6 trillion, while Forbes reports that the overall student debt (federal plus private) amounts to $1.75 trillion.
• Generation X maintains the highest share of the $1.6 trillion in federal student debt, approximately 38.40%, followed by Millennials at 31.94%.
• The average amount of student loan debt at graduation for both federal and private borrowers in 2021 was around $31,100, and the average federal student loan debt was $37,113, adjusted for inflation.

Introduction

State of Student Loan Debt in the U.S.

Total Amount of Student Debt

• According to a fact sheet published by the White House, as of 2022, the combined amount of federal student loan debt in the United States is more than $1.6 trillion, while Forbes reports that the overall student debt (federal plus private) amounts to $1.75 trillion. The total federal student loan debt is shared by between 43 million and 45 million borrowers in the country. It accounts for 92% of the current volume of outstanding student loans.
• A spreadsheet produced by the Federal Student Aid site shows a breakdown of the total federal student loan debt by loan type. Borrowers owe the most for direct subsidized and unsubsidized loans at approximately $864.9 billion, as of Q2 2022, followed by debt consolidation loans at $549.2 billion.

Breakdown of the Figure

By Generation

• Statistics provided by the Education Data Initiative indicate that Generation X maintains the highest share of the $1.6 trillion in federal student debt, approximately 38.40%, followed by Millennials at 31.94%. Meanwhile, Baby Boomers and Generation Z owe around 16.73% and 7.37% of federal student debt. Finally, members of the Silent Generation have a share of 5.54%.
• As shown in the pie chart below, in total, Generation X owes $601.7 billion, Millennials owe $500.5 billion, Baby Boomers owe $262.2 billion, Generation Z owes $115.5 billion, and the Silent Generation owes $86.8 billion.

 

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By Type of Program

• According to the Federal Reserve, 56% of outstanding federal student loan debt attained as of 2019 was owed by U.S. households with graduate degrees. Assuming that borrowers with graduate degrees have maintained this share over the past few years, they have a total of $896 billion (56% * $1.6 trillion) in debt in 2022.
• For private student loan debt, undergraduate loans account for around 88.69% of the $131.1 billion. Graduate loans make up the remaining 11.31% of this total.

Average Amount of Debt

Per Person and Household

• The average amount of student loan debt at graduation for both federal and private borrowers in 2021 was around $31,100, and the average federal debt was $37,113, adjusted for inflation. The states with the highest average among the Class of 2020 are New Hampshire ($39,928), Delaware ($39,705), Pennsylvania ($39,375), Rhode Island ($36,791), and Connecticut ($35,853).
• The Education Data Initiative provides the average student debt by household incomes ranging from up to $33,769 to more than $216,372. Using the chart supplied by the source, the average student debt per U.S. household amounts to approximately $45,725.60 (($32,518 + $42,774 + $43,399 + $51,529 + $58,408)/5).

Per Person Per Generation

• On average, the members of Generation Z, Millennials, Generation X, Baby Boomers, and the Silent Generation owe $17,338, $38,877, $45,095, $40,512, and $28,052, respectively, per borrower.

 

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Per Person Per Program

• Those in undergraduate post-secondary education have about $36,510 of debt. Graduate students with federal loans have an average of $91,148 in student debt.
• According to the most recently available data from the National Center for Education Statistics (NCES), the average debt for a borrower in certain programs goes as follows: M.B.A. ($65,090), Master of Education ($54,180), Law ($142,870), M.A. except in education ($71,470), M.S. except in education ($61,200), Ph.D. except in education ($97,000), Education (any doctorate) ($109,880), Medicine (M.D. or D.O.) ($241,560), Health Science Professional Practice Doctorate ($198,760), and non-Ph.D. Doctorate ($129,840).

Research Strategy;

Key Takeaways

• In Germany, public university education is free, but students take out loans to support the cost of living, or for private universities.
• Student debt in Germany is paid back based on income, and forgiven after 20 years. In Japan, loans are paid based on time-fixed intervals.
• An increasing proportion of universities in Japan are private, and debt is seeing some students avoid university, or avoid master's and doctorate programs. The average loan per year in Japan is US$6,542.41.

Introduction

Germany

• Average annual public university tuition: Public undergraduate programs are free. Consecutive masters (i.e., that follow on from the bachelors), are also free. Newly introduced fees in just one state in Germany are US$3,200 per year for non-EU citizens. Enrollment and admin fees are around €250 (US$290) per semester, depending on the university.
• Average student loan debt: In 2020,465,500 students had a student loan. We attempted to use the maximum total student debt and the number of students. However, the resulting figure is much too high.
• Total student debt: There were no figures available in the public domain. Going by the graphic at the end of this report, the total student debt is less than 1% of GDP. Germany's GDP in 2021 was US$4.22 trillion. That equates to a maximum total student debt of US$42 billion, but given that 1.35% of GDP is spent on education, the real debt figure is likely a 10th of this.
• Repayment model: Loans are interest-free. Repayment is based on income (once earning a minimum annual income of €30,000, people pay 9% of the total annual income), and all debt is forgiven after 20 years.
• Is student debt an issue: No, not a major one. In 2016, just 18% of students had a student loan of some kind.
• Factors contributing to it not being an issue: Because private schools and some post-graduate programs have high tuition costs, people may end up spending significant amounts of money, and students take out loans to cover the cost of living. Private fees can be around €20,000 a year (US$24,400). However, the German Federal Training Assistance Act provides a basic living subsidy for lower-income students, and parents are legally obligated to financially support their children, including for post-secondary education.

Japan

• Average annual public university tuition: 535,800 yen, or US$6,500.

• Average student loan debt: The average loan per year is 908,688 yen (75,724 yen per month x 12). That's US$6,542.41. The overall average loan is 3.25 million yen, paid off over 17.5 years, on average.
• Total student debt: US$76 billion in 2016, US$90 billion in 2018.
• Repayment model: Time-based repayment loans (payments at fixed intervals). There are two loan types; the first is interest-free and not tied to inflation, while the second has a maximum interest rate of 3% after graduation.
• Is student debt an issue: Yes. One in six graduate students in Japan is at least ¥3 million (US$21,618.89) in debt.
• Actions to minimize the issue: Student numbers are dropping, while the number of private universities is increasing (making up 78% of all universities in 2019). Unfortunately, this means that actions to address student debt are few. Many people in Japan are finding that they can't afford to study beyond graduate degrees, and say they would like there to be grants for doctoral programs and improved salaries, as incentives, for studying for longer periods. Students from low-income backgrounds appear to be forgoing a university education to avoid student loan debt. The Japanese government has introduced grants and a partial income-contingent loan (ICL) scheme to help address that.

 

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Research Strategy

Key Takeaways

• One disruptive way in which the government can lower the cost of higher education and thus reduce higher education loans in the US is by ensuring that "taxpayer-backed debt only flows to institutions and programs" in which the value of the education justifies the high cost of education. One certain way of ensuring this is through the debt-to-earnings ratio. This means that educational institutions that produce graduates having a high debt-to-earnings ratio or in "which the ratio of average student debt to graduates’ earnings exceeds a certain level" should be subjected to a prorated penalty.
• Due to the COVID-19 pandemic inducing a "feeling of impatience among students, parents and employers" and the rising cost of education linked with an often unnecessary extra year in college, several colleges and universities in the US are considering the introduction of "three-year degrees in at least some majors as part of a program called College in 3." These institutions include Utica College, Indiana University of Pennsylvania, New England College, Merrimack College, Portland State University, the University of Texas Rio Grande Valley, the University of North Texas, the University of Wisconsin Oshkosh, and Slippery Rock University, among others.
• While the Pell Grant has "kept pace with inflation" over the years, it occasionally increases sharply when Congress votes on increasing the college aid. A disruptive idea to lower the costs of higher education and thus reduce higher education loans is for Congress to "tie grant and loan levels to overall consumer price inflation" instead of increasing college aid in a haphazard and discontinuous manner.
• A disruptive idea jointly proposed by BCG and Google involves complete digital transformation of the higher education space in the US. These companies are of the opinion that the disruptive long-term trends of declining enrollment in US educational institutions, rising operating costs, and changing learning expectations of students due to the pandemic will eventually force educational institutions in the US to replace their "legacy IT infrastructure and applications with technology that better equips higher education for a digital world."

Introduction

Penalizing Colleges and Universities That Produce Graduates Having a High Debt-to-earnings Ratio

• While getting a good job and having financial stability in life is the primary goal for a majority of students in the US, Statista has reported that as of June 2022, about 11.1% of recent college graduates in the US were employed in jobs having low wages. The corresponding figure in June 2021 was 10.8%.
• One disruptive way in which the government can lower the cost of higher education and thus reduce higher education loans in the US is by ensuring that "taxpayer-backed debt only flows to institutions and programs" in which the value of the education justifies the high cost of education.
• One certain way of ensuring this is through the debt-to-earnings ratio. This means that educational institutions that produce graduates having a high debt-to-earnings ratio or in "which the ratio of average student debt to graduates’ earnings exceeds a certain level" should be subjected to a prorated penalty.
• These penalties will incentivize educational institutions to decrease their debt-to-earnings ratios by either "increasing the value of the education they provide" or by decreasing the cost of education. The idea is disruptive in the sense that while it will not rule out an increase in the cost of education, it will ensure that educational institutions produce commensurate improvements in the cost of education they provide or run the risk of facing penalties.
• Christopher Tremoglie of the Washington Examiner says, "The main problem is that these institutions of higher learning have gone unchecked on tuition prices. Only until colleges are held accountable for what is essentially price-gouging on tuition will the student loan debt crisis truly be fixed."

Reducing the Time Taken to Obtain Higher Educational Degrees

• As more and more students and their families complain about the rising cost of education, a growing momentum concerning reducing the time taken to obtain higher educational degrees is currently spreading across the US.
• While educational institutions in the US have been considering three-year bachelor's degrees as part of their educational programs ever since the 1970s, the idea did not take off as faculties disliked the idea of speeding up the delivery of instructions and students resisted accommodating a crammed schedule that did not provide them enough time to enjoy other college activities.
• However, due to the COVID-19 pandemic inducing a "feeling of impatience among students, parents and employers" and the rising cost of education linked with an often unnecessary extra year in college, several colleges and universities in the US are considering the introduction of "three-year degrees in at least some majors as part of a program called College in 3." These institutions include Utica College, Indiana University of Pennsylvania, New England College, Merrimack College, Portland State University, the University of Texas Rio Grande Valley, the University of North Texas, the University of Wisconsin Oshkosh, and Slippery Rock University, among others.
• Brian Reed, associate vice provost at the University of Montana, says, "There is an increasing number of students who want to get their credential and enter the world of work really quickly." The duration of the degree is often a major component of the return-on-investment calculations students and their families make. Brian Reed further says, "I have family members who are talking about, ‘Why would I want to spend six years at an institution and go into debt?’ It weighs heavily right now." The University of Montana offers three-year bachelor's degree courses in majors like marketing, accounting, psychology, finance, entrepreneurship, and management.
• A survey conducted by the Strada Center for Education Consumer Insights has revealed that over one-third of Americans without degrees believe that getting additional education would not help them find a job during periods of economic uncertainty. With several US students questioning the need to attend college or finding faster-paced training programs like coding schools as being more attractive compared to traditional colleges, US colleges and universities are seeing three-year bachelor's degrees as a solution for the problem of falling student enrollment.
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• The National Student Clearinghouse Research Center has revealed that currently 10% of full-time public college and university students and 12% of full-time private college and university students in the US are completing four-year degrees within three years. Graduating early has enabled them to save a lot of money.

Tying Government Subsidy Increases to Consumer Price Inflation

• The limits on student loans do not automatically adjust every year, but increase as per the discretion of Congress when the policymakers are pressured to increase the limits.
• While the Pell Grant has "kept pace with inflation" over the years, it occasionally increases sharply when Congress votes on increasing the college aid. For example, the Biden administration has increased the maximum Pell Grant award from $6,495 to $6,895 for FY2022-23.
• A disruptive idea to lower the costs of higher education and thus reduce higher education loans is for Congress to "tie grant and loan levels to overall consumer price inflation" instead of increasing college aid in a haphazard and discontinuous manner. The idea is disruptive because it has not been done before by Congress.
• While the idea would make college aid predictable, it would ensure that colleges that "allow their costs to increase in excess of inflation" are not rewarded by Congress.
• Ryan Cooper of The American Prospect is of the opinion that the US government should take charge of college education costs. He says, "Much like the medical system, higher education is badly in need of price regulation. For decades now, the government has been shoveling subsidies into colleges and universities, and (with a few exceptions) they have responded by jacking their prices through the roof. Biden can’t do this by himself, of course, but it’s long since time for the government to start demanding a better deal for itself — and American students."

Embracing Technology to Reduce the Cost of Education

• An analysis of data published by the US Census Bureau, the US Bureau of Labor Statistics, and the National Center for Education Statistics has revealed that the average cost of attending college has increased by 169% between 1980 and 2019. On the other hand, the average earnings of American workers aged 22 to 27 years have increased by only 19% during the same period.
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• In 2021, the education technology company Cengage conducted a survey of 1,600 new graduates of two-year colleges and four-year colleges in the US. The findings of the 2021 Graduate Employability Report revealed that while 21% of the interviewees felt that their colleges did not provide them with the requisite business skills to do their jobs properly, 38% of the interviewees felt that they hardly used the skills they had acquired in college.
• However, several interviewees in the above survey were open to the idea of non-traditional education, including training and online certifications, to acquire the required job skills. While 21% of them stated that they would pursue non-traditional education paths to obtain the necessary qualifications for a job in their chosen field, 49% stated that they would pursue training or online certifications to progress in their career.
• The COVID-19 "pandemic has accelerated the trend of increased online learning" as colleges and universities in the US "developed online or hybrid academic experiences that delivered, at the very least, basic educational necessities while ensuring their students stayed connected and informed." Research has shown that digital learning is extremely useful as it provides students with greater access to academic resources, increases personalization, and leads to overall reduction of the cost of education.
• A disruptive idea jointly proposed by BCG and Google involves a complete digital transformation of the higher education space in the US. These companies are of the opinion that the disruptive long-term trends of declining enrollment in US educational institutions, rising operating costs, and changing learning expectations of students due to the pandemic will eventually force educational institutions in the US to replace their "legacy IT infrastructure and applications with technology that better equips higher education for a digital world."
• Market studies have shown that almost 96% of private schools and 80% of public schools in the US have cheaper online programs compared to traditional in-person equivalent programs. Besides helping students save their money, online and hybrid educational programs offer flexibility to students to manage their education, family, and work life. The other benefits of digital maturity in the higher education sector in the US have been provided in the following infographic by BCG.
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Research Strategy