The Importance of Student Loan Programmes in the United States

Abstract

This paper puts student loan programmes in context and shows how important they are in the financing of higher education in the United States. The paper first shows the dominant role of the Federal Government in providing direct student financial aid and demonstrates that student loans have increased dramatically as a proportion of Federal aid and now are the major form of Federal aid. The US Federal Government's student loan programmes dominate the market for student loans. It also establishes that loan programmes are highly subsidized and involve large expenditures by the Federal Government. Interest subsidies account for the major portion of government expenditure on loan programmes.

This paper clarifies the relative importance of the Federal Government in financing higher education in the United States. It shows that changes in loan volumes have been responsible for most of the growth in Federal direct student aid. The reasons for the large changes in loan volumes that have occurred in the past 15 years are discussed.