The Question

Young professional at a kitchen table reviewing financial statements, student loan paperwork visible

The debate over student debt is usually framed as a political question: should loans be forgiven, and if so, how much? That is the wrong frame for predicting what happens by 2035. The more useful question is: regardless of whatever partial reforms do or do not pass, will student debt continue to act as a structural drag on the economic lives of the borrowers who carry it? The answer to that question is almost certainly yes.

What we are predicting is not the absence of reform. Income-based repayment programmes will expand. Some targeted forgiveness will occur for specific groups — public service workers, defrauded borrowers, those with decades of payments. But the scale of debt, the pace of new borrowing, and the interest dynamics that cause balances to grow even as borrowers make payments will ensure that the majority of the 45 million people currently carrying federal student loans will still feel its effects in 2035. We put the probability at 69%.

What the Evidence Shows

The average federal student loan borrower carries $37,853 in debt. But averages are misleading here: the distribution is heavily skewed. Roughly 3 million borrowers carry more than $100,000 — and the highest balances are concentrated among graduate and professional degree holders who borrowed for law school, medical school, or advanced degrees that did not deliver the promised income premium. Meanwhile, the borrowers most at risk of default are not those with the highest balances but those with the lowest: people who borrowed a modest amount, never finished their degree, and entered the labour market without the credential they paid for.

The impact on life decisions is documented and large. A Federal Reserve study found that each $10,000 in student debt reduces the probability of homeownership by 1.5 percentage points for borrowers in their late 20s. Among 28- to 30-year-olds with student debt, marriage rates are roughly 8% lower than among comparable peers without debt. Retirement savings contributions among indebted borrowers in their 30s are significantly lower than among non-borrowers, a gap that compounds dramatically over decades.

"Student debt is not just a financial problem — it is a life-stage problem. It is suppressing homeownership, delaying family formation, and emptying retirement accounts at exactly the ages when these things matter most for long-term outcomes."

— Federal Reserve Bank of New York, Student Loan Repayment and Homeownership, 2024

The mental health dimension is less discussed but equally real. A 2024 survey by the American Psychological Association found that 65% of respondents with student debt reported it as a significant source of stress — ranking above job insecurity, relationship conflict, and health concerns. Among borrowers who had been repaying for more than 10 years, 48% said debt stress had caused them to delay or abandon career changes they would otherwise have pursued. The opportunity cost is invisible in the aggregate data but enormous in individual lives.

"We did not create a student debt crisis. We created a generation-shaped hole in the American middle class, and then wondered why no one was buying houses."

Why This Is Happening

Interest keeps balances growing even when borrowers pay. Under standard repayment terms, borrowers with large balances and modest incomes find that their monthly payments do not keep up with accruing interest. Their balance grows even as they pay. This is not a bug — it is a mathematical feature of loans issued at rates that, for graduate borrowers, have reached 8% in recent years. For millions of borrowers, a decade of payments has left them owing more than they started with.

Reform is real but insufficient at scale. Income-driven repayment plans cap payments at a share of discretionary income and forgive remaining balances after 10 to 25 years of payments. These programmes are genuinely helpful for many borrowers. But they are also chronically misadministered — the GAO found in 2022 that 70% of borrowers who should have had loans forgiven under Public Service Loan Forgiveness had been wrongly denied. The gap between policy design and programme delivery is wide.

New borrowing continues to flow in at scale. Even if existing debt were resolved tomorrow, the system that created it is still running. College costs continue to rise. Eighteen-year-olds continue to borrow. Without structural reform to how higher education is financed — not just how existing debt is managed — 2035 will see a new cohort of borrowers in the same position the current cohort occupies today.

What Could Happen

Debt Burden Compounds for Most Borrowers Most Likely

Incremental reforms help some borrowers — particularly those in public service, those with very old loans, and those who navigate income-driven repayment successfully. But for the majority, interest continues to accrue, balances persist, and the life-stage suppression effects on homeownership, family formation, and retirement savings continue through 2035. The political debate intensifies without producing systemic change. New borrowers continue to enter the system at scale.

Income-Based Repayment Becomes the Effective Standard Possible

A significant expansion of income-driven repayment — with auto-enrollment, simplified administration, and a shorter forgiveness timeline — transforms the practical experience of debt for millions of borrowers. Monthly payments become affordable relative to income. The psychological burden eases. The suppression effects on homeownership and family formation reduce meaningfully, even though nominal balances remain. This is possible under a sympathetic administration with congressional cooperation — neither certain.

Widespread Forgiveness Transforms the Picture Less Likely

Broad federal forgiveness — $50,000 per borrower or more — passes through legislative or executive action, cancelling the majority of the existing $1.7 trillion. The immediate life-stage effects are dramatic: a wave of first-time home purchases, a jump in marriage and birth rates among previously indebted millennials, a surge in retirement contributions. The political and legal obstacles to this scenario are significant, and the Supreme Court's 2023 ruling constraining executive forgiveness authority makes the legislative path the only viable one. Less likely by 2035.

Our Assessment
We assign 69% probability that student debt continues to materially suppress homeownership, family formation, and retirement savings for the majority of current borrowers through 2035. This reflects our view that the scale of reform required to meaningfully change the picture for most borrowers — not just the best-positioned ones — is unlikely to materialise within nine years. Incremental reforms will help at the margins. What changes the picture fundamentally is either broad forgiveness (which requires legislative action the current political environment makes unlikely) or a structural shift in how higher education is financed for future students (which, if enacted now, would not affect 2035 outcomes for existing borrowers). The debt this generation carries, most of them will carry into the decade ahead.

What Can We Do

Person on a laptop researching student loan repayment options, income-driven repayment plan visible on screen

If you carry student debt, the most powerful thing you can do is understand your specific options — because the best strategy varies enormously depending on your loan type, income, and employer.

Enrol in income-driven repayment if you have not already. IDR plans cap payments at a percentage of your discretionary income — typically 5–10% — and forgive remaining balances after 10 to 25 years of payments. For borrowers with high debt relative to income, this is almost always better than standard repayment. The SAVE plan (or its successor) is currently the most generous option for most federal borrowers.

Check your eligibility for Public Service Loan Forgiveness. If you work for a government agency, nonprofit, or qualifying public institution, you may be eligible for full forgiveness after 10 years of qualifying payments. The programme has been misadministered for years, but improvements have resulted in $62 billion in forgiveness to date. The PSLF Help Tool on studentaid.gov will tell you where you stand.

Do not let debt prevent retirement contributions entirely. The compounding cost of not contributing to a 401(k) in your 20s and 30s is larger than most people realise. If your employer matches contributions, the match is essentially free money that exceeds almost any loan interest rate. Prioritising debt repayment over a matched employer contribution is almost never mathematically correct.

Stay engaged with the political process on this issue. Student debt policy is made by Congress and administered by the executive branch. It changes when electoral pressure demands it. The 45 million Americans with student debt represent one of the largest potential voting blocs in the country — when they vote on this issue, it moves.

Sources
  • Federal Reserve Bank of New York — Student Loan Repayment and Homeownership, 2024
  • US Department of Education — Federal Student Loan Portfolio Summary, 2025
  • American Psychological Association — Stress in America: Student Debt, 2024
  • Government Accountability Office — Public Service Loan Forgiveness: Actions Needed, 2022
  • Brookings Institution — Student Loan Debt and Lifetime Inequality, 2024
  • Forecast The World Research Desk — 800+ data sources