The $1.7 Trillion Lesson: How Education Became a Debt Machine

The total outstanding student loan debt in the United States exceeds $1.7 trillion. That number is larger than all outstanding auto loan debt and all outstanding credit card debt. It is owed by approximately 43 million borrowers, and it represents the single largest category of consumer debt after mortgages. The institution that generated this debt — the American university system — is not in crisis. Its endowments are growing, its administrative ranks are expanding, and its tuition continues to rise faster than inflation. The fragility here is not symmetrical. The institution is doing fine. It is the people the institution was built to serve who are carrying the weight.

This is the clearest case study in the series of what institutional fragility actually means for the individual. The university is not fragile. Your financial life, structured around the debt the university sold you, might be.

How Tuition Escaped Gravity

In 1980, the average annual tuition at a public four-year university was approximately $2,500 in current dollars. By 2023, that figure had risen to over $10,000 — and at private institutions, to over $40,000. Tuition has increased at roughly twice the rate of general inflation for four decades. No other consumer good has sustained this trajectory. The question is why, and the answer is not complicated.

The federal student loan system, as it has evolved since the Higher Education Act of 1965 and particularly since the expansion of lending in the 1990s and 2000s, removed price discipline from the university market. When a student can borrow the full cost of attendance regardless of that cost, and when the loan is guaranteed by the federal government regardless of the student’s ability to repay, the university faces no market constraint on pricing. It can raise tuition and know that the demand will follow, because the government will fund the difference. The student bears the cost. The university bears none of it.

This is what Taleb calls the absence of skin in the game. The institution that sets the price and delivers the product faces no consequence when the product fails to deliver a return sufficient to repay the price. If you borrow $120,000 to earn a degree that qualifies you for a $38,000 salary, the university has already been paid. The gap between the debt and the earning power is your problem, permanently.

Davidson and Rees-Mogg predicted in The Sovereign Individual that credential gatekeeping would decline as information technology made it possible to demonstrate competence without institutional certification. They were directionally right, though the timeline has been slower than they anticipated. The university’s grip on the credential has loosened, but it has not broken.

The Administrative Bloom

The growth in university costs is not primarily driven by faculty salaries or instructional spending. Faculty hiring has been essentially flat at many institutions, with the growth in teaching capacity coming largely from adjunct instructors — part-time, often poorly compensated, frequently without benefits. What has grown dramatically is the administrative layer.

Between 1975 and 2008, the number of full-time administrators at U.S. colleges and universities increased by approximately 235%, while the number of full-time faculty increased by approximately 51%. Titles that did not exist a generation ago — Vice Provost for Student Engagement, Director of Inclusive Excellence, Associate Dean of Wellness — now populate organizational charts across higher education. Each position requires salary, benefits, office space, and subordinate staff. The administrative bloat is not a conspiracy. It is the natural result of an institution with an unconstrained revenue source (federal loans) and no market feedback on pricing. When money flows in without limit, institutions expand to absorb it.

The student does not experience this as administrative growth. The student experiences it as a tuition bill that requires borrowing. The connection between the Vice Provost’s salary and the student’s debt is real but invisible, mediated by the loan system that makes any price payable at the point of purchase and ruinous over the following decades.

The Credential Trap

There is a parallel inflation at work in the labor market. Jobs that required a high school diploma in 1990 — administrative assistants, insurance adjusters, entry-level marketing positions — now routinely require a bachelor’s degree. This is credential inflation, and it operates through the same logic as monetary inflation: as more people acquire the credential, the credential buys less, and the next tier of distinction becomes necessary.

The result is a ratchet. Employers require degrees because degrees are common. Degrees are common because employers require them. Students borrow to acquire degrees because the labor market penalizes those without them. Universities raise tuition because students will borrow whatever is necessary. The federal government guarantees the loans because education is politically sacrosanct. Each actor is behaving rationally within their own incentive structure, and the aggregate result is $1.7 trillion in debt held by people who were eighteen years old when they signed the promissory note.

The return on investment has diverged dramatically by field of study. Engineering, computer science, nursing, and certain business degrees continue to generate returns that justify the borrowing. Degrees in many humanities fields, social sciences, and arts — fields that have genuine intellectual value but limited market value — frequently produce lifetime earnings that do not recover the cost of the degree plus interest. This is not an argument against studying philosophy. It is an argument against borrowing $80,000 to study philosophy at an institution that bears no cost when the investment fails to return.

The Bankruptcy Exception

Student loan debt occupies a unique position in American bankruptcy law. Under current statute, student loans are exceptionally difficult to discharge in bankruptcy — borrowers must demonstrate “undue hardship” through the Brunner test, a three-part standard that courts have interpreted so strictly that fewer than 1% of student loan borrowers who file for bankruptcy even attempt to discharge their educational debt. Every other form of consumer debt — credit cards, auto loans, medical debt, personal loans — can be discharged through bankruptcy. Student loans, in practice, cannot.

This exception means that a borrower who cannot repay has no exit. The debt follows them through career changes, health crises, economic downturns, and into retirement. Social Security benefits can be garnished to repay student loans. This is a legal structure that exists nowhere else in consumer lending, and it exists here because the federal government is the lender and has exempted itself from the ordinary constraints that govern creditor-debtor relationships.

The recent movements toward income-driven repayment plans and limited forgiveness programs have provided some relief, but the fundamental structure remains: you cannot escape this debt through the ordinary legal mechanism available for every other debt. The institution that sold you the product and the government that funded the purchase have arranged the terms so that the risk is entirely yours.

The Emerging Alternatives

The sovereign approach to education begins with a question that the university system has spent decades discouraging: what skill does the market actually value, and what is the most capital-efficient way to acquire it?

Coding bootcamps, professional certifications, apprenticeship programs, and employer-sponsored training are not new. What is new is their growing acceptance by employers who once filtered exclusively on degrees. Google, Apple, IBM, and a growing list of major employers have dropped degree requirements for many positions. The signal is shifting, slowly, from “where did you study” to “what can you do.”

Online learning platforms have made world-class instruction available at marginal cost. The MIT OpenCourseWare library, Coursera specializations, and discipline-specific resources mean that a motivated learner can acquire substantial knowledge without institutional enrollment. The missing piece has been credentialing — proof that the learning happened — and this gap is closing through portfolio-based hiring, skills assessments, and micro-credentials that carry industry recognition if not academic prestige.

The sovereign learner builds a skills portfolio rather than a credential portfolio. The distinction matters because skills compound — each capability acquired makes the next one easier and more valuable — while credentials depreciate. A degree earned in 2005 certifies knowledge that may or may not remain current. A skill demonstrated last month in a working project speaks for itself.

What This Means for Your Sovereignty

If you are carrying student debt, the sovereign path is not denial or despair. It is clear-eyed assessment: what is the interest rate, what is the repayment term, what income-driven options exist, and what is the total cost of this obligation over its lifetime. Many borrowers have never calculated the total interest they will pay. The number is often larger than the principal.

If you are deciding whether to borrow for education — or advising someone who is — the calculation has changed. The question is not “should I go to college” but “what specifically will I learn, what will it cost, what will I earn, and is there a less expensive path to the same outcome.” For many careers, the answer to that last question is now yes.

The deeper sovereignty principle is this: do not outsource your learning to an institution whose incentives do not align with your outcomes. The university is paid whether you succeed or fail. The bootcamp that offers income-share agreements — pay nothing until you earn above a threshold — has skin in the game. The employer who hires based on demonstrated skill rather than institutional pedigree is valuing what you can do, not what you paid for. Seek the arrangement where the institution’s success depends on your success. That alignment is rare in traditional higher education, and its absence explains the $1.7 trillion.

Build skills the market values. Acquire them at the lowest possible cost. Do not sign a non-dischargeable obligation at eighteen on the promise that an institution with no stake in your outcome will deliver a return that justifies the price. That is not education. That is extraction with a Latin motto on the letterhead.

This article is part of the Institutional Fragility series at SovereignCML.

Related reading: Healthcare by Spreadsheet, Pension Promises and Empty Vaults, The Sovereign Response