What Are Possible Solutions to the Student Loan Debt Crisis?

Student loan debt has tripled in the past two decades. Today, student loan debt totals $1.77 trillion, according to the Federal Reserve, up from $579 billion in 2008.

How did student loan debt get so big? And what are solutions to the student debt crisis? Read on to learn about causes of student loan debt, federal student loan forgiveness programs that might offer borrowers some relief, potential help from employers and the private sector, and strategies borrowers can use to make their student loan debt more manageable.

Understanding the Student Loan Debt Crisis

Student loan debt has grown faster than other sources of household debt. Between 2004 and 2023, student loan debt rose over 500%, and it is now the third-largest source of household debt after mortgages and auto loans.

One of the reasons for the skyrocketing student loan debt is rising tuition costs. The average cost of college has more than doubled over the past 25 years. Today, the average annual cost of attendance at an in-state public school is $27,146, while at a private university, the average annual cost is $56,628.

Another factor is that more students are taking out loans to pay for college. The number of students borrowing loans to afford their education has more than doubled since 1992.

As a result, there are now 42.7 million Americans with student loan debt. Per borrower, the average student loan debt balance is $38,375, according to the Education Data Initiative (EDI).

The Impact of Student Loan Debt on Borrowers

Student loan debt can have a wide-ranging impact on borrowers, from reducing consumer spending, to delaying their ability to buy a home or start a family.

Half of adults with student loan debt say their debt delayed the purchase of a home, according to EDI data. And 31% report that it has pushed back their purchase of a car, while 22% have postponed starting a business.

Day-to day spending among student loan borrowers also takes a hit. Each time a borrower’s debt-to- income ratio increases by 1%, their consumer spending decreases by 3.7%.

The effect of student loan impacts on borrowers may be long-lasting: It takes the average student loan borrower 18 ½ years to fully pay off their loans.

Recommended: The Impact of Student Loan Debt on the Economy

Government Policy Solutions

Possible solutions to student debt include government programs and policies that address federal loan repayment and forgiveness. Some schools have also introduced initiatives to make college more affordable.

Federal Student Loan Forgiveness Programs

Students who have qualifying federal loans may be eligible for student loan forgiveness. Under these programs, borrowers typically make a certain number of payments under a qualifying repayment plan for a set period of time to have their outstanding student loan balance forgiven.

For example, with Public Service Loan Forgiveness (PSLF), student loan borrowers working full-time in public service for a government agency or qualifying nonprofit organization may be eligible for forgiveness. Borrowers must have qualifying federal Direct loans and make 120 qualifying payments under an income-driven repayment (IDR) plan or the Standard Repayment Plan. After completing their qualifying payments, any remaining Direct loan balance they have is forgiven.

Income-Driven Repayment Reforms

Income-driven repayment (IDR) plans base borrowers’ monthly federal student loan payments on their income and family size. Repaying loans under an IDR plan allows borrowers to achieve forgiveness after 20 or 25 years. By the end of the repayment period, which is 20 or 25 years, the remaining loan balance is forgiven. However, forgiveness under most of these plans — except for the Income-Based Repayment (IBR) plan — is paused as of the end of March 2025.

Online applications for three of the four IDR plans are now available after being temporarily on hold earlier this year due to a federal court injunction. The IDR plans are:

•  Pay As You Earn (PAYE). Payments on this plan are 10% of a borrower’s discretionary income over 20 years.

•  Income-Contingent Repayment (ICR) Plan. ICR calculates payments at 20% of a borrower’s discretionary income divided by 12, or the amount they would pay on a repayment plan with a fixed payment over 12 years, whichever is less. The repayment term is 25 years.

•  Saving on a Valuable Education (SAVE): As of March 2025, the SAVE plan is no longer available after being blocked by a federal court. Forgiveness has been paused for borrowers who were already enrolled in the plan, and they have been placed in interest-free forbearance.

•  Income-Based Repayment (IBR). Payments for loans borrowed after July 1, 2014 are 10% of discretionary income over 20 years. On the IBR plan, forgiveness is still proceeding at this time since the plan was separately enacted by Congress.

Expanding Public Service Loan Forgiveness

In June 2024, Representative Bill Foster (D-IL) introduced the Public Service Loan Forgiveness Inclusion Act of 2024 to expand the types of repayment plans that would qualify for loan forgiveness for those who work in public service. Because PSLF can be a complicated process, millions of borrowers who have applied for it over the years have been denied and did not receive forgiveness. Expanding the repayment plan options for borrowers could potentially make the program more accessible and easier to navigate.

The bill was referred to the House Committee on Education and Workforce, but no other additional actions were taken.

In March 2025, President Donald Trump signed an executive order to limit eligibility for PSLF and requested an update to the program’s regulations. The executive order is being reviewed, and the PSLF program remains unchanged for now, according to the Federal Student Aid website.

Tuition-Free or Reduced-Cost Higher Education Initiatives

Some universities across the country have started offering free tuition programs to students whose family income is below a certain level. In addition to being a possible student loan debt solution, these initiatives can make college attendance more accessible.

Some notable examples of schools that have introduced these programs include:

•  Harvard University: The Ivy League institution announced that it would offer free tuition for students whose families make less than $200,000 a year beginning with the 2025-2026 academic year. Those whose families earn less than $100,000 will have all their costs covered, including housing and food.

•  University of Texas system: As of 2024, students at the University of Texas system whose families make $100,000 or less receive free tuition and fees at any one of the system’s nine institutions.

•  Massachusetts Institute of Technology (MIT): Starting in fall 2025, undergraduates from families with an annual income of less than $200,000 can attend MIT tuition-free, and families with an income below $100,000 will have all costs covered, including housing, dining, and fees.

•  Carnegie Mellon University: Students whose families earn less than $75,000 annually can attend the university tuition-free beginning with the fall 2025 semester.

•  Brandeis University: Brandeis covers all tuition costs for students with a family income of $75,000 or less, and half the tuition costs for families making between $75,000 and $200,000.

Private Sector and Employer-Based Solutions

Over the past few years, more employers have started to offer student loan repayment assistance to employees. In addition, some companies have teamed up with universities to offer scholarships and tuition aid for students to learn specialized skills.

Employer Student Loan Repayment Benefits

Some employers offer a benefit called loan repayment assistance, in which they help employees repay their student loans. The terms of these programs vary, but typically, an employer might contribute up to a certain amount, and the employee may have to work for the company for a specific period of time to be eligible. Check with your benefits or HR department to find out if your employer offers loan repayment assistance.

Partnerships Between Companies and Universities

Companies are also partnering with universities to help students get the knowledge and skills they need to be successful in their jobs. Students in specific programs may receive financial assistance with tuition, fees, and other costs to earn their degree and potentially land a position at the sponsoring company. Current employees at the company could learn new skills to advance on the job, while receiving tuition assistance from their employer.

Incentives for Early Loan Repayment

Some employers use programs that incentivize student loan repayment. For example, when an employee makes their regular monthly student loan payment, an employer can send an additional contribution toward their student loans. As a result, the employee’s student loan gets paid off faster and they save money on interest. The company may benefit, too: The program could help attract employees and encourage loyalty.

Personal Strategies for Managing Student Loan Debt

There are a number of methods that borrowers might use to help manage their student loan payments and reduce the amount of student debt they owe. Here are some to consider.

Refinancing and Consolidation Options

With student loan refinancing, you pay off your existing loans with a new loan from a private lender. Ideally, the new loan will have a lower interest rate, which could lower your monthly payments, or more favorable loan terms.

There are different types of refinancing borrowers can consider, including medical resident refinance if you’re pursuing a career in medicine.

If you have federal loans, it’s important to know that refinancing federal student loans makes them ineligible for federal benefits like income-driven repayment plans.

Another option is loan consolidation. With a Direct Consolidation Loan you can combine multiple federal loans into one new loan to streamline your payments, potentially lower your monthly payment amount, and gain access to IDR plans and federal forgiveness programs.

But there are some drawbacks. You may have a longer repayment period, pay more in interest, and lose access to some loan cancellation options with loan consolidation.

Budgeting and Debt Repayment Plans

Creating a budget and sticking to it can help pay borrowers on the path to repaying their loans. To get started, add up all the money you have coming in, like income from your job and anything you earn from a side hustle, and then make a list of your expenses, such as rent, utilities, and student loan payments. Put aside enough funds to cover these expenses and then see what you have left. With any luck, you might be able to direct additional money to your loan principal, which could help reduce the amount of interest you owe over the life of the loan.

There are specific debt repayment methods you can consider as well. For instance, with the debt avalanche method, you put extra funds toward repaying the student loan with the highest interest rate first and then move on to the loan with the next highest rate. With the snowball method, you pay off the smallest loan first and work your way up. With either option, you continue to make minimum payments on all your other loans.

Seeking Loan Forgiveness Opportunities

Check into the federal forgiveness programs mentioned above, such as PSLF and the IBR income-driven repayment plan, to see if you qualify. In addition, your state may offer a state-specific forgiveness program, especially if you work in a public service field like teaching or health care. Search your state government website to see what may be available.

The Future of Student Loan Debt Reform

The future of student loan debt reform is uncertain. In March 2025, after issuing an executive order for the Department of Education to be closed down, President Trump announced that the Small Business Administration would take over the student loan portfolio. No details or timeline has been given, and lawsuits have been filed against the administration over these actions. Much uncertainty remains about the proposed changes.

There has been some potentially positive action regarding debt reform, however. A bipartisan bill called the Affordable Loans for Students Act was introduced in Congress in March 2025. If passed, the legislation would cut interest rates on new and existing federal student loans to 2%. (By comparison, the current interest rates on federal student loans currently range from 6.53% to 9.08%, depending on the type of loan). The 2% interest rate would be retroactive, and also automatic so that loan borrowers would not need to opt in.

The Takeaway

With student loan debt at an all-time high, many borrowers are looking for some relief. There are federal loan forgiveness programs they can pursue, income-driven repayment plans that could help lower their monthly payments, and employer loan repayment assistance programs, if offered by their company.

Additionally, borrowers can create a budget to help repay their loans, use a specific debt repayment strategy like the avalanche method, or consider student loan consolidation or refinancing.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

What is the main cause of the student loan debt crisis?

There are several causes of the student loan debt crisis, including the rising cost of tuition and more borrowers taking out student loans. The average cost of college has more than doubled over the past 25 years. And the number of students borrowing loans in order to afford their education has more than doubled since 1992.

How does student loan forgiveness work?

Under student loan forgiveness programs, borrowers typically make a certain number of payments under a qualifying repayment plan for a set period of time to have their outstanding student loan balance forgiven. For instance, with Public Service Loan Forgiveness, borrowers who work in public service for a qualifying employer make 120 qualifying monthly payments under a qualifying repayment plan. After that, PSLF forgives the remaining balance on their qualifying federal Direct loans.

Are there any new policies addressing student loan debt?

The latest legislative action aimed at reducing student loan debt is the Affordable Loans for Students Act, a bipartisan bill that was introduced in Congress in March 2025. If passed, the legislation would cut interest rates on new and existing federal student loans to 2%. The 2% interest rate would be automatic so that loan borrowers would not need to opt in.

Can employers help with student loan repayment?

Yes. Some employers offer loan repayment assistance, a benefit in which they help employees repay their student loans. The programs work differently, but generally, an employer might contribute a certain amount to loan repayment, and the employee may have to work for the company for a specific period of time to be eligible. Check with your HR department to find out if your employer offers such a program.

What can borrowers do to manage student loan debt more effectively?

There are several strategies borrowers can use to manage student loan debt more effectively. First, they can create a budget to make sure they have the funds to pay their student loans each month. If they have funds left over after paying their bills, they can pay extra toward their loan balance. In addition, they can explore income-driven repayment plans, which could help lower their monthly student loan payments, check to see if they qualify for a federal or state forgiveness program, and consider loan consolidation or student loan refinancing.

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