Student Loans Aren't Looking Like 'Good Debt'

TL;DR: Federal student debt now reaches nearly 43 million Americans and a portfolio above $1.6 trillion, according to the Congressional Research Service. The Center for Responsible Lending says loans that constrain wealth-building for 20 or 25 years can't be called good debt. For an accredited investor, the loan rate is the number a private deal has to beat.

How big is federal student debt?

The Congressional Research Service reports that nearly 43 million individuals, one in six adult Americans, have federal student loan debt, and the portfolio now exceeds $1.6 trillion. That figure comes from its February 2025 update, so treat it as a snapshot rather than today's total.

The same report shows how borrowing per student changed. Average annual Title IV loan amounts borrowed by undergraduates rose from $3,800 in academic year 1995-1996 to $6,500 in 2011-2012, and then stayed relatively flat.

Measure	Earlier	Later
Average annual Title IV amount borrowed, undergraduates	$3,800 (AY1995-1996)	$6,500 (AY2011-2012)
Undergraduate borrowers	4.1 million (AY1995-1996)	Nearly 9.3 million (AY2011-2012)
Undergraduate borrowers, later period	Nearly 9.3 million (AY2011-2012)	5.9 million (AY2019-2020)

Source for every row: the Congressional Research Service. Borrowing per student climbed fast and then flattened, while the number of undergraduate borrowers peaked and fell. The outstanding balance still sits above $1.6 trillion because earlier borrowers carry their loans for years.

Why do borrowers say it isn't paying off?

The Center for Responsible Lending puts the objection directly. Its Nadine Chabrier is quoted saying, "Student loans that constrain wealth-building for 20 or 25 years cannot be called 'good debt.'"

Completion matters too. A Federal Reserve note says only about six in ten attendees of four-year institutions complete a degree, and that a degree can be worth roughly $1 million in additional lifetime earnings while remaining a risky investment that won't pay off for many students. The loan is owed whether or not the diploma arrives.

What does this mean if you are an accredited investor?

A loan is a known rate, and your alternative has to beat it. Our earlier piece on the student loan rate cut covers the loan side of that comparison. A private fund has to clear your loan rate after fees, after the lockup, and after you discount a projected return for the fact that it isn't a realized one.

That is the downside-first test applied to any deal. The certain return from paying down a loan sits on one side of the comparison, and a fund's net return sits on the other. To see how much of a private return fees take, read what private equity access really costs. For a yield you can set directly against a loan rate, look at what hard money lending pays and risks.

This isn't a call to pay off a loan or to skip a commitment. The loan's rate and your net expected return belong on one page.

Common mistakes

The first is treating all education debt as one rate. Federal and private loans behave differently, so look up each balance and rate on your servicer's dashboard before you compare anything.

The second is counting on forgiveness as a plan. Under federal repayment plans, the Center for Retirement Research says unpaid debt is extinguished after 20 or 25 years, depending on the plan. That is two decades or more of payments first, and every one of those years is capital you can't put anywhere else.

The third is comparing a loan to a headline return. A fund's target IRR isn't what lands in your account. Net out fees, and ask what happens if you need the money back in year three.

FAQ

What percentage of college students pay off their debt?

The sources reviewed here don't print a payoff rate. They do show that a Federal Reserve note puts degree completion at only about six in ten four-year attendees. The loan is owed either way.

Is student debt ever forgiven?

Under federal repayment plans, the Center for Retirement Research says any unpaid debt is extinguished in 20 or 25 years, depending on the plan. That means two decades or more of payments before any balance is cleared.

Is student debt really good debt?

The Center for Responsible Lending's Nadine Chabrier says loans that constrain wealth-building for 20 or 25 years cannot be called good debt. Whether yours qualifies depends on your rate, your balance and what the money could earn elsewhere.

What to do next

Pull up every education loan you or your family carry, write the rate beside the net-of-fee return of the private deal you are considering, and see which one clears the other. For a downside-first reading of the news, subscribe to the free AIN briefing.

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