Unsettling Accounts: How Illinois is confronting the growing student loan crisis
By Claire Murphy, Illinois Answers Project
With $49,000 in student loan debt, Josue Villalpando figured becoming a homeowner was a long way off.
“The thought of purchasing a home was definitely floating around, however I never actually looked into it knowing that I had such a big burden with my student loans,” he said.
A recent graduate of the University of Illinois Chicago, Villalpando, 29, took out private loans to pay for college. Unlike federal student loans, private loans typically have higher interest rates and fewer forgiveness programs, making them harder for borrowers to pay off.
Then, his fiancé came across the SmartBuy program – an initiative set up by the state to help incentivize residents to purchase a home while paying off their student loan debt, one of the leading factors delaying homeownership among young adults.
SmartBuy pays up to $40,000 in student loans and contributes up to $5,000 towards a down payment or closing costs at the time of purchase.
“He showed it to me and said, ‘Hey, maybe, let’s fact check it, and let’s make sure it’s a real thing, because it’s almost too good to be true, right?’” said Villalpando, who received his degree in communication.
Records obtained by the Illinois Answers Project show that a total of 755 houses have been purchased through the program, with 482 still in process from the second round of applications.
Villalpando closed on his home in Lansing, Illinois, in March.
“With my student loans being fully paid off, I know I can comfortably pay my mortgage without having to worry about financial constraints,” said Villalpando. “The SmartBuy program is what made me take the initiative.”
But the long-term viability of SmartBuy remains uncertain.
Josue Villalpando, 29, graduated from the University of Illinois Chicago with $49,000 in student loan debt. (Provided by Josue Villalpando)
Renewal for the program is dependent on reallocation of state funding. After the first round closed in 2021, it took the state more than three years to reopen the program, which closed for the second time in February.
The uncertain timeline for program renewal raises questions about it being a viable option for tackling the staggering $63 billion in collective student loan debt the state faces.
Illinois has the seventh highest average state debt in the nation. Coupled with one of the highest unemployment rates in the country, the burden of these loans become even more substantial for some borrowers, effectively delaying the purchase of a home, the decision to start a family and progress towards economic advancement.
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With federal student loan programs in disarray, innovative, state-level programs like SmartBuy offer an alternative answer to combating the crisis. But federal funding, legislative approval and borrower awareness remain barriers to sustained coverage and widespread success.
Student loans are also preventing qualified applicants from pursuing professions with costly higher education requirements, like legal and medical careers.
“Tuition for undergraduate and law school has grown at something like three to five times the rate of inflation over the last 40 years,” said Bob Glaves, executive director of the Chicago Bar Foundation, which promotes equitable access to justice and legal aid in Chicago.
“We don’t have a way to measure [this], but I think everybody knows how many people, particularly from economically disadvantaged backgrounds, are not even pursuing these careers, not even pursuing higher education, because they see the price tag and the amount of debt they’d be taking on and just aren’t going to do that,” said Glaves.
The burden of this long-term debt has created a financial paradox for many graduates.
“When we think of the American dream and [how] everybody should have equal opportunity, this is a big part of it — education,” said Glaves. “Being able to make that realistically accessible to everybody in a way that’s fair to everybody. We’re falling short of that in the system we have right now.”
What does student loan debt look like in Illinois?
Nicole Johnson, 35, is currently on track to receive her fourth higher education degree by the end of September — a master’s in journalism from Northwestern University’s Medill School.
This will be her third master’s degree in the past 12 years.
Johnson is a strong advocate for education, having worked in numerous public service roles, including as a former third grade teacher in Chicago Public Schools. In 2019, Johnson ran in the 20th Ward aldermanic election, losing to Jeanette Taylor in the general runoff.
“I wanted to be part of being able to provide young people with a good education, because education was the thing that opened so many doors for me and exposed me to a new world,” said Johnson.
Growing up in Englewood, Johnson was exposed to disparity and inequity at a young age.
Motivated by the stark economic inequities she witnessed in her own community, Johnson sought out numerous higher education degrees as a means to increase her earning potential.
“Your economic outcomes and possibilities are going to be quite limited unless you do some type of investment,” she said.
Her degrees haven’t come for free. Johnson’s current student loan balance is over $200,000, a number that would take decades to pay off without any kind of repayment or forgiveness program.
Johnson isn’t alone. Nearly 1.6 million Illinoisans are currently living with student loan debt.
Nicole Johnson, 35, has three higher education degrees. Seeing economic inequities in her own community, Johnson sought out higher education to increase her earning potential. She now has over $200,000 in student loan debt. (Akilah Townsend for Illinois Answers Project)
The average borrower in the state owes about $39,000 in student loans, according to the Education Data Initiative, a research group that collects data and statistics on the U.S. education system.
More than half of all borrowers in the state are under the age of 35, and only 13.4% of student borrowers owe less than $5,000. A majority of borrowers owe more.
25 – 34 year olds account for the most borrowers of any age group – more than 558,000. But 35 – 49 year olds like Johnson have the highest total outstanding debt of over $22 billion. Together, the two age groups account for almost 68% of the state’s federal loans.
While residents like Johnson have sought relief via. federal forgiveness options, recent changes and cuts at the federal level have made the future of these programs uncertain.
The current status of loan forgiveness
The Department of Education has been the U.S. government’s administrator of all federal aid programming since 1965, but this is soon to not be the case.
With the Trump administration’s announcement that student loan oversight will be moved to the Small Business Administration, and the U.S. Department of Education being effectively cut in half, many borrowers are left wondering how this will impact their relief options.
In February, former President Biden’s SAVE program – the lowest monthly income-driven repayment plan to date – was issued an injunction by a U.S. appeals court. Several Republican-led states rejected the plan and sued the Biden administration, citing that it was “unlawfully trying to mass cancel hundreds of billions of dollars of loans.”
Monthly payments for those enrolled in SAVE have been placed in a period of forbearance, with accruing interest, until the court reaches a final decision.
On May 5, the Federal Student Aid office resumed its collection of many student loans, which had been effectively paused since March 2020 due to the COVID-19 pandemic.
Since Johnson has returned to school, her loans have been in deferment. But when she purchased a home in 2021, she said student loan and credit card debt notably impacted the mortgage rate she was able to qualify for. “It was definitely an impediment,” said Johnson.
The dissolution of the U.S Department of Education has left millions of student loan borrowers, including Johnson, confused and wondering what the future of their repayments will look like in the wake of a departmental restructuring.
Rae Kaplan, a Chicago-based attorney specializing in student loan law and bankruptcy solutions, said she has witnessed despondency in a number of clients as a result of student loan debt.
“I’ve had people come in and tell me that they didn’t want to get married or have a family because their student loans were so daunting,” said Kaplan. “And the point is that student loans were meant to lift people up, not to be this weight dragging everybody down,” she said.
According to Kaplan, a majority of clients don’t even realize what options are out there.
Several federal and state-based forgiveness solutions can provide effective relief for borrowers over a period of time, even amidst the disorder of the FSA. They just need to know what their choices are, said Kaplan.
Relief options for Illinois residents
Johnson was formerly enrolled in the SAVE program, but like many other federal borrowers, qualifies for other income-driven repayment plans like Public Service Loan Forgiveness.
To qualify for PSLF, individuals must work full-time for a governmental body or select non-profit organization. PSLF forgives the total remaining balance on all federal student loans after 120 monthly payments determined by a qualifying repayment plan.
Nicole Johnson, 35, has three higher education degrees. Seeing economic inequities in her own community, Johnson sought out higher education to increase her earning potential. She now has over $200,000 in student loan debt. (Akilah Townsend for Illinois Answers Project)
“Essentially, you only have to make payments on your loans for 10 years… and the payment is very reasonable, because it’s about 10% of your discretionary income,” said Kaplan. “So for a lot of people, that means the monthly payment is no more than their cell phone bill,” she said.
Working on and off in the public sector for nearly a decade, Johnson already has 93 qualifying monthly payments towards her student loans. Her nearly six figure balance will be completely forgiven once she completes the remaining 27 over the next two years.
Kaplan estimates that nearly 30% of Illinois residents qualify for this program, along with additional state-based loan forgiveness and repayment opportunities.
According to the Education Data Initiative, only about 18% of eligible student borrowers end up applying for loan forgiveness at all.
“We go on WGN TV, we go on WGN radio, and try to get the word out that if you are an Illinois resident and you work in the public sector, there are some really good options out there to get your loans reduced and forgiven, but people think that it must not apply to them,” Kaplan said. “I hear all the time.”
Johnson says borrowers may also remain unaware of forgiveness programs because of prevailing social taboos. “Honestly, student loan debt is not a conversation,” she said. But specialists like Kaplan are working to change that by speaking openly about local repayment options.
The Illinois Student Assistance Commission, a state-based government agency that provides higher education resources to students and families, administers a number of relief programs for residents.
Dollar amounts for each award are subject to annual reviews by the Illinois General Assembly and the Office of the Governor, but last year the state awarded nearly $4 million in loan repayments to qualifying residents through their seven ISAC-administered programs. ISAC has increased funding for most of those programs for the 2025 fiscal year.
Last year, 649 residents enrolled in an ISAC repayment program, but many more than that qualify for the award, according to Kaplan. Frequent federal policy changes and extended loan repayment uncertainty during the COVID-19 pandemic contributed to lowered demand, according to ISAC.
“We’ve been in an extended period of uncertainty with respect to loan repayment since 2020,” said Lynne Baker, managing director of communications at ISAC. “There were extended forbearances as a result of the pandemic, which meant that there was a period when people didn’t have to pay on their loans and likely were not focused on loan forgiveness programs,” she said.
ISAC forgiveness programs and eligibility requirements
| Loan Repayment Type | 2025 Fiscal Year Appropriation |
| Community Behavioral Health Care Professional Loan Repayment Program | $7,500,000 |
| Human Services Professional Loan Repayment Program | $5,250,000 |
| Illinois Teachers Loan Repayment Program | $975,000 |
| John R. Justice Student Loan Repayment Program | $80,972 |
| Nurse Educator Loan Repayment Program | $500,000 |
| School and Municipal Social Work Shortage Loan Repayment Program | $6,000,000 |
| Veterans’ Home Medical Providers’ Loan Repayment Program | $26,400 |
Although a majority of borrowers’ student loans are federally allocated, in 2019 to 2020 approximately 10% of college graduates in Illinois had private student loan debt.
In response to growing concerns about the impacts of large private student loans, The Office of the Illinois State Treasurer created the Student Empowerment Fund in 2024, a $1.5 billion investment fund providing capital for lower-rate private loans for residents attending in-state institutions.
“This program aims to alleviate student debt burdens in Illinois and make it possible for more students to pursue higher education,” said Eric Krol, director of communications for the Treasurer’s Office.
Kaplan said while it’s essential to know what relief programs exist, the best way to tackle student loan debt is preemptively.
“Having a good plan and strategy, knowing the laws, knowing who should be the federal parent, plus borrower, and exactly what those payments are going to look like is really key, and can really avoid wasting a lot of money,” she said.
“For 90% [of borrowers] there’s something you can do to lower your payments and even get on track to have your loans forgiven. I just don’t want people who have loans to feel hopeless, because I talk to a lot of people every day who feel hopeless about their loans,” said Kaplan.
The SmartBuy solution
Illinois will have the greatest decline in the number of new homeowners in the next two decades – a decrease of more than 7% by 2040, according to the Urban Institute, a non-profit economic and social policy research firm.
While multiple factors can be linked to this decline, data from the Federal Reserve suggests historic levels of student loan debt are to blame.
A little over 20% of the decline in homeownership rates among 24-32 year olds from 2009 to 2014 can be attributed to rising student loan debt across the country.
“Student loan debt is one of the single largest barriers delaying younger households from achieving their dream of homeownership,” said Illinois Housing Development Authority (IHDA) Executive Director Kristin Faust in a press release.
Through the SmartBuy program, Josue Villalpando was able to close on his home in Lansing, Illinois in March 2025. “With my student loans being fully paid off, I know I can comfortably pay my mortgage without having to worry about financial constraints,” said Villalpando. (Provided by Josue Villalpando)
The state came up with SmartBuy as a proposed solution. The program was created using a $25 million capital bill fund from Gov. JB Pritzker’s 2019 Rebuild Illinois Plan.
“Through SmartBuy, we have seen that this targeted relief can help new buyers overcome this financial burden and secure a home much earlier, allowing for a better opportunity to start building equity,” Faust said.
The first round of SmartBuy paid off an average of $26,700 in student loan debt per buyer, with the second round expected to average $28,800 per buyer.
Of course the program does come with specific eligibility requirements.
A buyer’s full student loan debt must be paid off at the time of purchase. If their debt exceeds $40,000, they must make up the difference at the time of closing. Villalplando said he needed to come up with an extra $9,000 before closing on his Lansing home.
Buyers also need to have a minimum credit score of 640 and live in the home for at least three years after closing or repay a portion of the debt assistance. IDHA determines the interest rate on the home’s mortgage.
So far, of the 631 loans closed in the first round, 15, did not make it through the three year forgiveness period. IDHA told the Illinois Answers Project they do not possess data as to why the borrower had to sell.
Chicago residents must have a household income of less than $134,000 and the purchase price for a one unit home must be under $610,000 and no more than $754,000 for a two-unit.
“There is no requirement in terms of where the home is or the census tract it’s in,” said Jason Finn, a Chicago-based realtor who works with SmartBuy applicants.
According to data obtained from IDHA, about 87% of homes purchased in the first round and 75% of homes purchased in the second round of the program were located in the Chicago region of Illinois.
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“This is the sixth different IDHA program that I’ve worked with, and, for the folks that can benefit, I think it’s a bigger boom than any of the other programs they’ve had,” said Finn.
“I’ve had a lot of clients that have huge amounts of student debt, well into the six figures. Many of them aren’t working in a career that was envisioned when they incurred all that student debt. So, I’d love to see more opportunities like this.”
What begins as an investment in future prosperity can become a prolonged financial strain that limits career choices and delays other life milestones. The SmartBuy program hopes to make Villalpando’s story a more common one.
“I know many people who have student loan debt just following them for 15 plus years, and it seems like it’s never ending,” said Villalpando.
“So I just hope [SmartBuy] keeps going,” he said.
A new proposal on student loan debt
Even with available state-sponsored and federal forgiveness programs, and unique opportunities like SmartBuy, eligibility for these options can be so specific that many borrowers still fall through the cracks. For example, the borrowers who work in service-oriented careers but don’t qualify for PSLF.
That is what led members of the Chicago Bar Foundation, the charitable arm of the Chicago Bar Association, to develop a comprehensive legislation proposal addressing the coverage gap.
“We had an advocacy committee that really started this process of getting feedback on, how did [student debt] get like this? How did we get to this position now where it costs so much to go to school and we have people graduating with these mortgage sized debts?,” said Glaves.
The proposed legislation includes a simplification of current repayment programs by incorporating a multi-tiered income-based repayment program that places stricter limits on borrower loan sizes.
“It really has to be done with some more accountability on the amount that’s borrowed in the first place, both on the schools and the borrower,” said Glaves. “Otherwise taxpayers are on the hook for a lot of this.”
Glaves believes setting realistic borrowing limits will also mitigate national student loan default rates, which have declined in recent years, though such limits may prevent students from accessing sufficient funds to cover their educational costs.
The initiative also suggests Congress should allow bankruptcy options as a last resort. While not impossible, Glaves said filing for bankruptcy is extremely difficult within the current financial aid system.
“Someone gets in a situation where that income based approach isn’t going to work for them, there should be an option to file for bankruptcy at that point, as there is in every other kind of instance, in our country,” said Glaves.
Filing for bankruptcy typically results in additional consequences for borrowers, impacting their credit score and ability to acquire future loans. But if necessary, this option can substantially aid borrowers who, for reasons out of their control, aren’t able to complete their degrees and now have a mountain of debt to pay off.
The proposal has received support from the Illinois delegation and a general recognition from Congress of the need for a unified legislation approach, but Glaves expects it will not be passed during the current political term. Still, he remains hopeful.
“This is just one of those issues that, because it really does require some bigger changes to the system, we’re going to continue to work on,” said Glaves. “Even if there isn’t a lot of promise to have this happen in the short term politically.”
With an uncertain political landscape and climbing student debt, borrowers like Johnson wonder what the future of education will look like without a clear plan in place.
“Education is going to look different in 20 years, who knows what’s going to happen,” said Johnson. “In my mid-30s I’m thinking, okay how are my kids going to go to school?”
Making it in Chicago
The path toward upward economic mobility is increasingly out of reach for many in Chicago and Illinois. This series by Illinois Answers — the journalism arm of the Better Government Association — examines some of the obstacles, including child-care costs, skyrocketing student loan debt, medical costs and affordable housing. Stories examining those topics are being reprinted here with permission from Illinois Answers. Visit Illinois Answers Project to read the entire eight-part series.
This article first appeared on Illinois Answers Project and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
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