Is Student Loan Debt the Next Financial Crisis?

The Great Financial Crisis feels like a lifetime ago, yet the world hasn’t let down its guard. Some believe the nation’s $1.69 trillion in outstanding student loans could pose a threat to the economy in much the same way as the mortgage crisis did in 2008 and 2009.

Is that true? While student loan repayments are a burden on many households and could impact the economy, a repeat of the widespread devastation of the Great Financial Crisis seems very unlikely.

Student Loan Debt vs. the Great Financial Crisis

When comparing student loan debt to the Great Financial Crisis, it’s important to remember that mortgage-backed securities (MBS) based on subprime mortgages and the swaps derived from them are considered one of the main culprits of the collapse. A housing boom in the years that led up to the crash created an abundance of mortgage approvals by lenders who issued subprime loans to people who couldn’t afford them, leading to a subprime meltdown.

Mortgage-Backed Securities (MBS)

A standard procedure in the mortgage industry is to bundle loans together into a security and sell them to investors. Mortgage-backed securities work similarly to bonds by providing a steady flow of interest payments, while also freeing up capital at banks that can then issue new mortgages.

However, during the Great Financial Crisis, a large number of these securities were rated as investment grade when their underlying assets were shaky subprime loans. Credit default swaps exacerbated this already-tenuous situation. If you held an MBS but were worried about getting repaid, you could buy a credit default swap as insurance, which transferred the risk to an investor who was happy to receive a premium in exchange for accepting the risk. But when subprime borrowers defaulted en masse, these investors couldn’t pay up, and MBS holders lost their money.

Student Loan-Backed Securities

There are a couple of reasons why this scenario isn’t likely to repeat itself in the student loan market.

According to the Federal Reserve Bank of New York, although there’s significant student loan debt outstanding at almost $1.7 trillion, it pales in comparison to outstanding mortgage debt at nearly $14 trillion. Furthermore, student loan debt accounts for just 9% of household debt vs. 73% for mortgages.

The following image shows non-housing household debt percentages as of the fourth quarter (Q4) of 2025.

Second, although student loans can be packaged and sold to investors as student loan asset-backed securities (SLABS), this market is very small, especially when compared to CDO/CLOs or auto loan securities. This doesn’t pose the sort of systemic risk that securitized mortgages did in 2008.

There may be some cause for worry, where student loan defaults are concerned. During the Great Financial Crisis, the delinquency rate on mortgages rose rapidly and ultimately peaked just north of 11%. The Federal Reserve reported that 9.5% of student loans were delinquent or in default as of Q4 2025. In Q4 2024, that figure was 0.5%.

It is possible that a crisis will evolve from student loan debt, but other forms of debt could cause or contribute to one as well—nearly all forms of consumer debt are securitized, including auto loans, credit card debt, and mortgages.

It would take a significant event to cause a financial crisis equal to that of the Great Financial Crisis.

Student Loan Debt Is a High Priority

Student loan debt is a much higher-profile issue than subprime mortgages were before the housing market collapsed. According to the U.S. Department of Education, 42.8 million borrowers owe $1.69 trillion in federal student loan debt as of Q4 2025.

Progress is being made through initiatives that help student loan borrowers pay back their loans. The College Board reports that in 2025, 39% of borrowers paying back a federal student loan were enrolled in an income-driven repayment (IDR) plan.

In prior years, the federal government tried to alleviate the mountain of student debt. Its efforts were a giant leap from the measures taken after the financial crisis.

2022 Student Debt Relief Measures

For example, in 2022, the Biden-Harris administration announced its student loan debt relief plan to forgive up to $20,000 in student loan debt per borrower. The White House estimated that more than 90% of the relief would go to households making less than $75,000.

However, the action met with legal challenges. On June 30, 2023, the U.S. Supreme Court declared the program unconstitutional, forcing the Biden-Harris administration to pivot to new measures for student debt relief.

2023 Student Debt Relief Measures

In response to the Supreme Court decision, the Biden-Harris administration announced the Saving on a Valuable Education (SAVE) plan. The new plan, which replaced the older Revised Pay as You Earn (REPAYE) plan, included several student debt relief measures, such as:

• Lowered monthly payments of 5% of discretionary income for undergraduate borrowers
• A higher discretionary income threshold, which meant that an estimated 1 million borrowers would owe $0 per month because they didn’t make enough to have discretionary income
• Forgiven loan balances after 10 years of payments if the original loan balance was $12,000 or less
• No more capitalization of unpaid interest, which meant student loan balances would never grow as long as borrowers kept current with their payments

The COVID-19 moratorium on student loan payments and interest ended. Interest began accumulating again on Sept. 1, 2023, and the first student loan payments since the pandemic were due on Oct. 1 of that year.

To help financially vulnerable borrowers, the White House announced a payment “on-ramp” period from Oct. 1, 2023, to Sept. 30, 2024. Payments were due during that time, and interest accrued on student loan debt, but that interest wouldn’t capitalize at the end of the 12 months. Additionally, borrowers with late, missed, or partial payments weren’t considered in default, reported to credit bureaus, or referred to collections agencies.

Borrowers were still expected to make payments. However, the on-ramp was intended to help them adjust their finances once payments and interest resumed.

The Dismantling of the SAVE Plan

On July 18, 2024, a federal appeals court blocked the SAVE plan until two court cases centered on the IDR plan could be resolved. At that time, the Department of Education moved borrowers enrolled in the SAVE plan into interest-free forbearance while the litigation was ongoing. It also outlined options for borrowers who were nearing Public Service Loan Forgiveness (PSLF)—borrowers could either “buy back” months of PSLF credit if they reached 120 months of payments while in forbearance or switch to a different IDR plan.

Changes in 2025

Due to ongoing court challenges to SAVE, the Department of Education stopped allowing people to sign up for it in the spring of 2025 and denied all pending applications. On Dec. 9, 2025, it announced the end of the SAVE plan, based on its proposed settlement of legal challenges to the plan with the state of Missouri. Per the One Big Beautiful Bill Act of 2025 (OBBBA), SAVE will be eliminated by July 1, 2028. Borrowers already in the SAVE plan don’t have to make payments at this time, though interest continues to accrue and increase their balances. However, they will have to move to other available plans by July 1, 2028 at the latest.

Other Debt Forgiveness Measures

Before the sweeping relief, targeted debt forgiveness had already taken effect for students who attended predatory or fraudulent schools. Students who attended several technical or vocational schools, such as ITT Technical Institute, may be eligible for federal loan forgiveness.

On a broader scale, the Public Service Loan Forgiveness (PSLF) program allows those who work in public service positions to receive debt forgiveness after 120 qualifying payments while working in a nonprofit or government job. Income-based repayment (IBR) programs also aim to lessen the monthly financial burden for low-income borrowers.

On July 1, 2026, a new rule for the PSLF takes effect. It has no bearing on the underlying law. However, as of that date, employers will be ineligible for the program if they’re determined to be engaged in illegal activities, as defined by the rule. On or after that date, no payment made by borrowers will qualify as a PSLF payment if their employer has engaged in “illegal activity that rose to the level of substantial illegal purpose.”

The Bottom Line

Undoubtedly, the student loan system is in desperate need of reform, but comparing it to the mortgage crisis is similar to comparing apples and oranges.

Although the total amount of outstanding student loans now stands at $1.69 trillion, that number is small compared to the roughly $14 trillion in outstanding mortgage debt.