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Before he even took office, President Joe Biden faced calls from student loan debtors and political colleagues alike to cancel – in full or in part – the nation’s $1.7 trillion in student loan debt. This pressure is the culmination of years of effort. Almost a decade ago, the Occupy Student Debt Campaign, a student debt abolition movement, an offshoot of the Occupy Wall Street protests, announced as one of its goals the elimination of current student debt through a single act of relief. It sounded fantastical at the time.
But less than a decade later, the ever-growing student loan bill became an issue in the 2020 Democratic presidential primary. While Sen. Bernie Sanders argued the entire sum should be forgiven, the Biden campaign ultimately floated the idea of making four-year public institutions free for any family earning under $125,000 annually, as well as forgiving up to $10,000 in federal student loan debt. In the last session of Congress, now Senate Majority Leader Chuck Schumer, Senator Elizabeth Warren, and Representative Ayanna Pressley introduced a resolution to forgive up to $50,000 in federal student loan debt. They reintroduced it once again within weeks of Biden’s inauguration.
Originally, government and private banking made student loans available to increase enrollment and access to education. But over time, the ballooning cost of university and vocational training took on a life of its own, as well. For the people who owe money, it impacts everything from career choices to marriage rates. People with student debt have fewer retirement savings at the age of 30 and are less likely to own a home by their mid-30s.
It took more than three-quarters of a century to get to this point. It started, as these things often do, with the best of intentions. In June of 1944, Franklin Delano Roosevelt signed into law the Servicemen’s Readjustment Act of 1944, more commonly known as the G.I. Bill. The bipartisan legislation provided loans to veterans for the purchase of farms, homes, or businesses. It also provided for university education, and ultimately sent payments for 7.8 million of the approximately 15.75 million veterans directly to institutions of higher learning that the serviceman decided to attend, covering the cost of tuition, as well as books and room and board.
History teaches us that the G.I. Bill was both a popular and programmatic success. The truth, as it often is, is more complicated. When it came to higher ed, in a foreshadowing of problems that plague government-run student loan programs to this day, nearly a third of the 14.5 billion dollars dispersed went to fictional institutions, job training scams, and inflated charges. Additionally, white men often received preference at elite institutions. Nonetheless, despite the disparities and faults in the implementation of the G.I. Bill, it led to massive social change. Americans began to see degrees as the way to professions. In 1940 the number of college graduates amounted to 186,500. In 1950, that number had more than doubled to 432,058
The G.I. Bill also changed the relationship of the federal government with higher education. After the launch of the Russian satellite Sputnik in 1957, the federal government once again sought to promote higher education, specifically the study of science. In 1958, the National Defense Education Act, the first large-scale federal loan program, was signed into law. Soviet advances, Congress concluded, required “the mastery of modern techniques developed from complex scientific principles” and that the defense of the United States “depends as well upon the discovery and development of new principles, new techniques, and new knowledge.” The Act declared “the security of the Nation requires the fullest development of the mental resources and technical skills of its young men and women.”
During the Cold War years, American society also changed as civil rights and ideas for a better society gained traction. It was in the decade of the 1960s that President Lyndon B. Johnson initiated his Great Society endeavor. In 1965, President Johnson signed into law what he considered to be the companion to the Elementary and Secondary Education Act of 1965: the Higher Education Act of 1965. It established what became known as the Stafford Loan Program. The loans were interest-free and required no repayment schedule until after graduation.
But all this money sparked a change almost no one predicted. Yes, structural changes were made at colleges, such as the development of research facilities, to accommodate the needs of the increased research. But the schools began to view their students as customers, people buying an education and college experience. They sold them on the idea that the borrowed money would allow them to gain a better professional footing, and the increase in their salary would allow them to pay back their loan bill on schedule.
These student consumers needed to be tended to and wooed. College life received an upgrade courtesy of the funds suddenly pouring in. Staples such as dorm rooms, eating facilities, fitness centers, and classrooms all received upgrades. Then there were the for-profit vocational schools. Eager to increase revenues, many began to reduce admissions standards, admitting less qualified students who paid their bills with borrowed government funds.
Students, it turned out, were not price-sensitive when it came to using borrowed funds. Colleges quickly realized they could raise prices without affecting their enrollment. For example, in 1976, the average cost among all institutions when including room and board was 2,275 dollars, but that price more than doubled a decade later to $5,206. This price accounts for inflation. Many turned to loans to paper over the gap. Over time, students began to face higher debt loads and a harder time paying off the loans.
At the same time, the federal government, in response to popular tales of people declaring bankruptcy to get out from under their student loan bill, began to make it harder to do just that. Beginning with a 1976 ban from declaring bankruptcy within 5 years of your repayment as a way of debt relief, the ban was extended to 7 years in 1990. Finally, as part of the 2005 bankruptcy reforms pushed by the then-Senator Joe Biden, the federal government made it all but impossible to excise both federal and private student loans through the bankruptcy process, legislating that the holders needed to prove something called “undue hardship,” a nebulous standard that has proved all but impossible for more than a handful of people to prove.
It is, for many student debtors, one step forward, two steps back. Income-based repayment plans result in ballooning debt loads for many. The Public Service Forgiveness Plan, adopted during the George W. Bush administration, turned out to be so badly written, that few people who thought they qualified to have their loans wiped out after a decade of service work did so, a problem compounded by bad advice from student loan servicers who administered the loans on behalf of the federal government.
Here’s hoping for relief. Higher education is vital to the United States’s success going forward. It allows for a more well-informed citizenry and fosters ingenuity. In the words of Terrel Bell, Ronald Reagan’s Secretary of Education,
“investment in education pays the richest of all dividends.”
Education can lift people and propel the country’s economy, but it can’t do that if it leaves many of its beneficiaries weighed down by life-altering amounts of debt.
Devan Lindey is a third-year Ph.D. Candidate at Purdue University studying the History of Education as well as American Constitutional and Legal History.
One thought on “Student Loans: The Origins of a Racket”
Well articulated truths