Student Loans: A Multi-Generational Financial Trap

“When the United States began its experiment with federally backed student loans in the 1960s, no one predicted that, by the early 21st century, students would have run up over $1.8 trillion in debt and that many of them would be unable to repay what they owe. We were told over and over that college debt was good debt because of the huge increase in lifetime earnings that a degree was supposed to guarantee. The Tar Heel State has its own set of unique problems when it comes to student debt loads. North Carolina ranks among the top 10 states in debt per borrower, approaching $39k per student-debt holder . One unique feature is the state’s Research Triangle (UNC, NC State, and Duke), which both creates and attracts high-debt graduate and professional students. These individuals carry the largest debt loads of all, often reaching six figures. Nationally, a government-supported increase in individual educational demand enables tuition hikes. This is a well-known relationship : Every $1 in new student debt offered drives a $0.60 increase in tuition. North Carolina ranks among the top 10 states in debt per borrower. --> When taking the long view of the data on student loans in both North Carolina and nationally, it becomes clear that a multi-generational debt trap has ensnared a shockingly large number of Americans. What’s almost as surprising as their number (over 44 million borrowers) is who they are. It’s Gen Xers and older generations, those aged 50-plus, who have seen the highest increase in late payments, with over 21 percent of older Americans with student debts going into serious delinquency. Not only are they falling behind on their payments the fastest but, as a group, these Americans have the highest average debt per borrower, at over $47,500 . Among them is Rick Betancur. In his September 2025 interview with the Wall Street Journal , he recounted that his loans have lingered for 26 years. The 55-year old New Jersey chiropractor initially borrowed $74,000, but, even after he stayed current with his repayment plan, his interest has compounded to the point where his “graduate school debt has more than quadrupled to $300,000.” For Gen Xers hoping to retire in the next 10 to 15 years, this debt burden has them set up for more years of work than their high-school counselors advertised back in the days of AquaNet and acid-washed jeans. Betancur recalls the messaging of his high-school days: “Back then college was a must. […] You were either going to college or sweeping floors.” Not to be outdone, younger debtholders like Kat Hanchon, 33, are lamenting the fact that their credit scores are dropping precipitously due to serious delinquency. For those like Kat who are younger, a slide into subprime territory may be a greater burden than it is for her older counterparts, who already own homes, some with sizable equity. Once the Trump administration restarted collection proceedings for student loans in May of 2025, some, like Hanchon, saw their payments jump to levels higher than before Covid-19. The promises made by the Johnson Administration’s Higher Education Act haven’t materialized. --> Whether borrowers are young or old, employed in their chosen fields or not, the promises made by the Johnson Administration’s Higher Education Act haven’t materialized, and the student loans that followed haven’t matched the rhetoric. That legislation heralded opportunity for all but has turned into something else: higher costs for debt-ridden graduates. These outcomes are yet another example of how government meddling in market activity produces the opposite of its stated intent. In fact, things just get worse for those whom such policies allege to help. Legendary economist Ludwig von Mises quipped , “Economic interventionism is a self-defeating policy. […] They bring about a state of affairs, which—from the viewpoint of its advocates themselves—is much more undesirable than the previous state they intended to alter.” Too few economists and policymakers have heeded Mises’s words of wisdom. The economists should have seen these unintended but predictable outcomes coming and urged policymakers to reject this form of educational welfarism. The nonsensical view that increases in government spending on education will make it more affordable was touted by Barack Obama in the 2012 State of the Union address, which saw the president declaring , “Of course, it’s not enough for us to increase student aid. […] States also need to do their part, by making higher education a higher priority in their budgets.” Now, the chicken of economic illiteracy has come home to roost. The chicken of economic illiteracy has come home to roost. --> In fact, the result of the ongoing increases in educational spending that began to take off back in the Johnson administration has been predictable. For example, as mentioned above, the Federal Reserve found that, as of 2015, tuition went up 60 cents for every dollar of subsidized student loans offered, as well as 15 cents on the dollar for unsubsidized loans. Further, it found that “pecuniary demand externalities” meant that loan offerings raised prices for all students. Put in layman’s terms: When Uncle Sam is giving out credit cards with limits that exceed current tuition, expect tuition to go up next year. It’s not just the rising tuition costs. The fact is that the unemployment rate for new graduates is now 5.6 percent , significantly higher than the national average of 4.2 percent. This “flip” began just before the Covid hysteria and has persisted ever since. There’s also evidence that artificial intelligence is capable of replacing the work of entry-level college grads. Fortune magazine quotes Bill McDermott of ServiceNow, who thinks that the unemployment rate for recent graduates “could easily go into the mid-30s in the next couple of years.” That doesn’t bode well for repayment, as the fresh-eyed faces of the 2025 graduating class carry an average debt load of around $29,000 each . What was intended to make college more affordable has had the opposite effect. --> Government intervention that has driven higher-ed prices higher has been counterproductive. What was intended to make college more affordable has had the opposite effect. Indeed, if the laws of economics had been given half a thought, this outcome would have been obvious to policymakers at the time. While loan forgiveness and discharges are still being addressed by the Trump administration, the fact remains that higher education itself is headed for a reckoning. Recently, the administration has set up the Treasury to take over student-loan repayment from the Department of Education. It has announced a “Federal Student Assistance Partnership,” set to roll out in July 2026, to begin collecting approximately $180 billion in delinquencies. The $1.8-trillion student-debt portfolio will at least theoretically be repaid on a streamlined plan, impacting over 7 million borrowers, stressing households that had been under Covid-era deferred payments. Despite the fact that this will likely lead to ongoing and increasing stress for these households, there’s no such thing as a free lunch. The administration has determined that it’s time for borrowers to pay the piper. When politicians make promises that attempt to break the laws of economics, it’s their social engineering that ends up breaking. This has cost many college grads their financial future. As a result, many have called for the abolition of the student-loan program and of the Department of Education altogether. It has been said that the purpose of any system is that which it accomplishes. The financial-aid and student-loan system has produced higher prices, massive debt, and the demoralization of both the young and old who are finding repayment ever more difficult. It’s sadly ironic that the symbol used for the Department of Education is the tree of knowledge. The Department’s subsidies and loans have produced nothing but bitter fruit, and it’s well past time for it to be cut down, root and branch. Jeffery L. Degner is a research fellow with the American Institute for Economic Research and the senior fellow in free enterprise at Cornerstone University. The post Student Loans: A Multi-Generational Financial Trap appeared first on The James G. Martin Center for Academic Renewal .

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