Summer’s end doesn’t just mean college students will be returning en masse to campuses — some for the first time since things went virtual in March 2020. It also means major problems for many alumni saddled with student loans. The moratorium on most federally held student debt is set to expire at the end of September. So far, the Biden administration has only wiped out the balances racked up at a handful of defunct for-profit schools and promised a report on the legality of using an executive order, as the left has demanded, to cancel a sizable chunk of the $1.7 trillion that more 45 million Americans owe.
So many Americans were never supposed to owe that much student debt. Yet a crisis that disproportionately affects borrowers of color and particularly leaves women struggling to repay loans is not a story of the best of intentions gone horribly wrong.
Rather, in the 1960s lawmakers purposefully crafted the Guaranteed Student Loan Program to jump-start a student loan industry — instead of really investing in colleges and universities to keep costs down or forcing them to provide young people with genuinely equal opportunities to enroll.
Lending to students seemed like a sensible solution to rising college costs and increased demand for higher education in the 1960s.
For one thing, more Americans were taking on debt than in previous generations and seeing it as an investment in the future. The New Deal’s mortgage program had turned many renters into homeowners, for example. That experiment was meant to revive the housing sector by guaranteeing bankers would be repaid for the mortgages extended, thereby encouraging lending. Even with this government push, the gains were not evenly shared. White men benefited most, by design. Nonetheless, the program was viewed as a success.
The Franklin Roosevelt administration had also set a precedent for directly aiding students, not campuses. An ambitious 1930s program paid students to work so they could afford to study. Later, Title II of the still-beloved 1944 GI Bill of Rights covered veterans’ college expenses.
Lawmakers habitually entertained some kind of national scholarship program to make college education more affordable, especially after veterans flocked to college campuses in the late 1940s. Bills perpetually died in Congress over fights in the 1950s about whether federal money could be given or lent to segregated public schools or private institutions, especially if they had a religious affiliation.
Those fights over segregation and the separation between church and state almost derailed passage of the 1958 National Defense Education Act, which offered federal loans to undergraduates and scholarships to graduate students. Only the very real possibility of getting nothing after almost a year of wrangling led to a compromise: Every accredited school, including segregated or religious institutions, would be eligible to apply for the federal money to set up campus loan funds.
Even so, the funding level for this program was sparse. Campus financial aid officers were left in charge of awarding the relatively small number of $1,000 loans available annually, which did little to cover college costs at a time when most families netted less than $5,600 a year. Nor did this law help address deeper inequality or segregation at these institutions. Even so, the loan program still ended up being more popular than lawmakers predicted. It may not have provided much, but it did give something for cost-conscious students, parents and campuses.
So the Lyndon Johnson administration and its congressional allies understandably embraced loans as they strategized on how to ensure equal, affordable access to higher education as more and more baby boomers graduated from high school.
But still policymakers hesitated to take a bold stance against discrimination on campuses across the country. Thanks to the 1964 Civil Rights Act, to be eligible for funding from the 1965 Higher Education Act (HEA), colleges, universities and libraries could not discriminate on the basis of race, sex, religion or country of origin. Liberals correctly suspected that campuses would be slow to desegregate, but they didn’t include a plan to force integration for fear of losing support for the bill.
The HEA instead included direct federal aid for “developing institutions,” which White House insiders later admitted was a polite term for the historically Black colleges and universities (HBCUs) that Congress’s ardent segregationists had always been loath to support.
Liberal Democrats and Republicans really hoped the HEA’s student assistance programs, seemingly buried in the fourth title, would incentivize the expansion and equalization of opportunities to go to college as well as Americans’ ability to pay for it. Johnson promised that the bill’s mix of grants, loans and work-study jobs would guarantee “a high school senior anywhere in this great land of ours can apply to any university in any of the 50 states and not be turned away because his family is poor.”
The Guaranteed Student Loan Program’s promise to repay bankers was a big part of that lofty goal. Like Roosevelt's mortgage legislation, this provision incentivized financiers to lend to students so that they could enroll, while campuses themselves determined eligibility. It was a convoluted arrangement that emerged in the midst of expensive, expansive government endeavors like the war in Vietnam and the Great Society — along with growing pressure from conservatives to cut taxes and spending.
Offering bankers another federally-guaranteed financial program was a cheaper, more American way to finance higher education’s expansion than directly and robustly funding colleges and universities so they wouldn’t have to charge tuition. After all, at the time, many Democrats and Republicans credited the mortgage industry with transforming a country of renters into a nation of homeowners.
Yet while lawmakers saw that housing program as a broad, revolutionary success (oblivious to the inherent racism and sexism that researchers have spent the past 30 years documenting), the mortgage model didn’t really seem to work for higher education as fees rose and many campuses struggled financially in the 1970s. Lawmakers on both sides of the aisle spent decades bolstering the student loan industry, instead of addressing the cost of tuition. In the mid-1980s, years before journalists and lawmakers noticed how expensive even public universities had become, Francis Keppel, the director of Johnson’s Office of Education, admitted that his staff and congressional allies “did not expect the amounts disbursed as loans to increase so rapidly, or to take so large a part in each student’s financial aid ‘package.’”
Financial aid officers were supposed to have offered needy undergraduates “grants, loans, and work-study reasonably balanced so as to leave students and their families with a manageable debt at the end of higher education.” But instead, loans took on an outsized — and ever-increasing — role as tuition skyrocketed and public investment in higher education plummeted.
Forty years later, Johnson’s liberal successors regularly acknowledge and publicize recent research showing how unequally colleges and universities have been offering the discounts, scholarships and work-study opportunities that lessen what students and their families have to borrow. Families of color often have to take out the most since they lack the kind of generational wealth that federally financed homeownership has created for White peers. That research has helped Rep. Ayanna Pressley (D-Mass.) and others make the case that mass cancellation of student loan debt is a matter of racial, not just economic, justice.
There have been signs that that message has gotten through to the White House. The Biden administration’s infrastructure bill included a substantial investment in community colleges as well as four-year institutions that serve many students of color, such as HBCUs. The White House even promised to study mass cancellation before the headline-making July 2021 forgiveness of debts accrued at now-defunct for-profit colleges.
But more is needed, like the bold ideas in the College for All Act, to end the complicated financing that was never supposed to leave millions of Americans drowning in debt. Having genuinely tuition-free, public institutions is really the only way to create a better new normal in which students don’t accrue a pile of debt as students return to campuses.