The Student Loan Debt Crisis: How did we get here?
Carlon Howard, New Leaders Council Rhode Island
For many years, college goers have endured the overwhelming pressure of student loans. Nearly 40 percent of all adults under thirty have outstanding student loan debt, and approximately 50 percent of young adults with bachelor’s degrees are struggling with the same. Across the country, 40 million adults must figure out how to manage student debt that equates to a total of 1.3 trillion dollars. A large portion of Americans do not believe the lifetime value of their degree is worth the cost, yet many American citizens still see college as a must.
So, how did we get here?
The United States’ strength as a nation historically has depended on the intellectual capacity of our citizens. Future generations, however, may be dissuaded from pursuing their intellectual goals as higher education grows more expensive. From an equity standpoint, the often staggering costs of college continue to be a barrier to college access for students from underserved communities.
In an increasingly technologically advanced society, knowledge that can only be obtained through higher learning is critical. Due to a variety of circumstances that have shifted college costs ever more to students and families over the past couple of decades, people now have to give even more thought and consideration to funding their education.
This article explores the history of student loans in an effort to inform future college affordability solutions and provide context.
The Birth of Student Loans
On October 4, 1957, the Soviet Union launched Sputnik, the first man-made satellite to reach Earth’s orbit. Americans were shocked, surprised, and generally not happy that the Soviets were surpassing our nation in the Great Space Race that dominated the mid-twentieth century. Many Americans feared that we weren’t producing enough scientists and engineers to remain a competitive nation.
Prior to Sputnik’s launch, congressional leaders were divided on the subject of federal education assistance. Up until this point, the Senate had produced three bills pushing forward the measure, but each one died in the House. The Soviet’s new advancements provided the motivation elected officials needed to jointly create legislation to fund higher education.
Ultimately, Congress developed the National Defense Education Act of 1958 — intentionally named to get bipartisan support. This piece of legislation provided low-interest loans for college students, as well as graduate fellowship opportunities predominantly in science, engineering, and math. Thus, the first federal student loans were born.
Less than ten years later, President Lyndon B. Johnson signed the Higher Education Act of 1965 partly to provide financial assistance to postsecondary students. With this new law, the federal government established the Federal Family Education Loan Program (FFEL). Through this law, private lenders were able to issue student loans through government subsidies. Essentially, if a student was unable to repay a private loan, lenders could still receive payment via the federal government.
From then until now, a variety of reforms have gone into effect including lowering student loan interest rates in 2005 and abolishing FFEL in 2010 in favor of the Direct Loan Program — a federal loan program where the government lends directly to students instead of private institutions.
Rising College Costs
Now, attributing the student loan debt crisis solely to the advent of student loans completely misses the big picture. Another huge factor is rising college costs. Over the past 20 years, in-state tuition at public universities with national recognition has increased by over 200 percent. At private national universities, tuition increased over 150 percent. Meanwhile, median household incomes haven’t come anywhere close to such increases.
In 1940, an undergraduate student at the prestigious Ivy League University of Pennsylvania paid $420 a year in tuition and fees (less than $7,000 in today’s dollars). Presently, an incoming freshman at UPenn is looking at over $45,000 in tuition and fees for their first year — and this doesn’t even include room and board.
A large factor contributing to higher college costs is the increased demand for a college education. In 1944, President Franklin D. Roosevelt signed into law the Servicemen’s Readjustment Act of 1944, or the G.I. Bill as it’s more commonly known.
The G.I. Bill made postsecondary education more accessible to service members by defraying costs. Given this, many veterans returned home after their service commitments and enrolled in college at a relatively high rate. By 1950, over 400,000 citizens had college degrees — nearly triple the amount prior to the G.I. Bill. This population constituted approximately 10 percent of the U.S. population and nearly half of these college graduates were veterans. Today, almost 35 percent of all Americans have at least a bachelor’s degree, meaning the demand for postsecondary education is higher than it’s ever been.
Another factor contributing to higher college costs is state disinvestment. Over the past thirty years, states increasingly have slashed higher education spending and relied more heavily on spending cuts to address budget woes.
One study found that state spending on postsecondary education has remained at some of the lowest levels they’ve ever been. Since the 2008 recession, state funding on average has struggled to be on par with pre-recession levels despite increased revenue in more recent years. In 2008, states spent on average nearly 20 percent more on higher education than they currently do.
With more people interested in higher education, many colleges tout astronomical budgets as they compete for students and attempt to please alumni. Years of state budget cuts and with few incentives to control costs have allowed universities to push more of the burden to students and their families.
Looking Forward?
In 2012, outstanding student loan debt passed the $1 trillion mark. Today, about three fifths of all college grads have student loan debt.
For millennial college grads, job prospects are less promising than prior generations. Recent graduates can expect to pay relatively more for their education despite dwindling incomes. A college degree undoubtedly increases an individual’s lifetime earnings, but initial college investment present a huge barrier for many aspiring college grads and leave many current grads with buyer’s remorse.
Despite many efforts to alleviate college costs, few have presented a sustainable long-term solution.
Read part one of A Trillion Dollar Anchor: The Weight of Student Loan Debt on the Millennial Generation here.
Carlon Howard is the executive director of Breakthrough Providence, a nonprofit organization that works to expand college access for underserved students and build the next generation of educators. He is a 2017 NLC-RI Fellow and can be reached at choward@breakthroughprovidence.org.
