Solving the student debt crisis is not enough

Mall Americans expressed relief when the Biden administration announced this month that the moratorium on federal student loan repayments would be extended through January 2022. This reprieve is certainly good news for borrowers, but even a Totally overhauling the federal student loan system wouldn’t get to the heart of higher education’s economic problems. For this, we need strong and direct government support for colleges, especially struggling small campuses. Most colleges have historically relied on a delicate mix of government support, philanthropy, and tuition fees to stay open. Covid-19 has upended this complex financial edifice, sparking new levels of anxiety about how colleges, especially small ones, could reopen safely and affordably.

These fears are not new. They have long been part of the complicated history of American higher education – including the 1960s, the famous days of state and federal support salad. We used to think of the Higher Education Act of 1965 as the start of a major government investment in post-secondary education, and it did. But by prioritizing government-backed student loans over direct college support, the law also contributed to the shaky economic terrain we inhabit today.

In the fall of 1968, just a few years after the famous passing of the HEA, John F. Kennedy College – a small institution in Wahoo, Neb. – was in serious trouble. Weeks before classes started, desperate undergraduates held a bazaar with a kissing booth to raise money to keep the campus solvent. The Save Our School committee got help from locals who said Newsweek that the three-year college was “the biggest industry in Saunders County.” The secular, self-sufficient liberal arts college meant a lot to the 800 students who paid $900 per semester for room and board, tuition and other fees. These revenues, President Theodore Dillow explained to Newsweek, barely covered running costs, let alone the capital required for new facilities and stock exchanges. Dillow had already warned 25 professors that he could no longer pay their salaries. The entire campus would close unless he could quickly raise $207,000.

To try to raise this money, seven college students piled into a battered station wagon and drove all day and night, looking for donors in New York and Washington, D.C. Hubert Humphrey wrote them a letter of support, shared with the press by the Vice President’s staff. Other than a short piece in Newsweek a month later, however, the story was discovered.

Paul Boyajian, a Virginia resident working as director of the Office of Equal Opportunity at the US Department of the Interior, found the silence extremely frustrating. He wrote angry letters to congressional education subcommittees and major media outlets, complaining that “not a Washington-area newspaper or television station” considered these “young, clean, beardless students , simply but suitably dressed… worthy of interest”. Especially given “the agitation for yet more institutions of higher learning,” it seemed absurd to him that this rural college named after the recently killed president could be lost. “What good is student aid,” he asked, “when there’s no college to go to?” Something had to be done, he insisted, about “the unrealistic gap between small, needy private colleges and huge, well-resourced public and private institutions”.

He received only one response, from a close White House friend of Lyndon Baines Johnson, who wrote that the administration had “concluded there was no way for us to be helpful. “. After all, “Eisenhower College in New York is in a similar situation.”

JFlexible campuses and others struggled in the late 1960s because the federal government put a premium on student loans, rather than vigorously funding colleges and universities to free them from their historic reliance on tuition fees. schooling. The Guaranteed Student Loans program – part of the Higher Education Act of 1965 – was intended to make student loans more attractive by backing such loans at the federal level. In effect, the government has promised to bear the cost if a borrower defaults, thereby protecting private lenders from risk.

This approach was typical. Many Americans today do not realize how much of the Johnson administration’s efforts to build a Great Society relied on finance rather than direct spending. Historians have, after all, spent years pointing to health care and education legislation as landmark achievements of the sixties. But the Great Society liberals only extended the New Deal experiments by offering citizens government-backed financial products (like federal unemployment insurance and long-term mortgages) instead of a strong support. Medicare, after all, is health insurance, not health care. Such public-private financing strategies have not overcome poverty and have been less transformative, in the long run, than their architects had hoped.

The guaranteed student loan program illustrates how guaranteeing bankers a return on their investments has cost students and taxpayers without really consolidating college finances. Undergraduate students were eligible for a guaranteed loan if financial aid officers determined that their adjusted family income was less than $15,000. Campus staff gave the youngsters the necessary documents to prove admission and eligibility for the secured loan, which the aspiring students took to participating lenders who decided whether or not to extend the credit. Congress never promised students, parents, or campuses that bankers would lend. Lawmakers simply hoped that ensuring bankers’ repayments would be enough to spark a new student loan industry to fund higher education, just as the federal mortgage program had transformed homeownership during the Great Depression.

Guaranteed loans once seemed, as one historian put it, “a small price to pay” for the historic passage of the Higher Education Act. Federal support for colleges between 1963 and 1966 more than doubled, from $1.4 billion to $3.7 billion. Researchers have linked this jump to the exponential growth of the nation’s student body between 1955 and 1974. The number of students tripled, the percentage of 18- to 24-year-olds pursuing higher education nearly doubled, and the number of community colleges more than double. Almost every state has created or developed a new public research university. Campuses awarded nearly five times as many master’s degrees, as well as nearly quadrupling the number of doctorates. More women and students of color also enrolled.

These were real benefits, but 50 years later the costs of legislators’ reliance on government-backed loans have also become apparent. State and federal support for higher education has declined sharply since the 1970s, when tuition rates in public and private institutions began to climb steadily, which only made headlines for a while. the Great Recession. Nonprofit campuses across the country have remained committed to not charging the full cost of education, even as inflation has increased spending on phoneline infrastructure repairs, expansions and upgrades. , messaging systems and Wi-Fi. State and federal lawmakers across the country have done little to help cover the costs for decades in which tax and spending cuts were popular among Democrats and Republicans. “Higher education is a discretionary expenditure of the state,” education experts explained in 2004. “Every public official knows that colleges and universities can raise tuition to compensate for state budget cuts. ” Politicians also recognized that students and parents could borrow what they needed, either through the guaranteed student loan program or through private loans that a growing number of financiers were also offering.

Jhe growing number of students and parents forced to borrow over those decades received far greater coverage than campuses struggling for credit, donors, and students—like Nebraska’s ill-fated Kennedy College. This small campus closed its doors in 1975, only 10 years after its founding and the passing of the Higher Education Act. Those years saw a spike in campus closings and mergers nationwide. Americans of all ages had fewer options for furthering their education for decades when knowledge-based industries, like finance and medicine, eclipsed manufacturing as drivers of economic growth and individual opportunity.

This story is important to remember now. We’re in the midst of a welcome national conversation about the student debt crisis, and there’s a lot to be said about it. A significant write-off of the $1.7 trillion owed by borrowers would provide vital and immediate relief to more than 45 million Americans. But we also need to think bigger if we are to prevent public goods, like colleges and universities, from becoming private luxuries. It is time to review our existing models for financing higher education.

Congress is currently debating the infrastructure needed to build a more prosperous and equitable new normal as we live with Covid-19. We need to recognize colleges as essential components of this infrastructure. Investing in community colleges, as the Biden administration has proposed, is a first step. But much more is needed, including new research funding for historically black colleges and universities and minority-serving institutions. The College for All Act, introduced by Representative Pramila Jayapal, Democrat of Washington, and Senator Bernie Sanders, Independent of Vermont, is a good model, offering enough support to make community colleges free; ensuring that families earning less than $125,000 can enroll in public colleges, as well as nonprofit institutions serving minorities without debt; and set aside $10 billion for student support programs at underfunded institutions. These ideas have the potential to create a real path towards building an accessible and high-quality higher education system capable of meeting the needs of the whole country.

A version of this piece appears in the author’s book, Indentured students: How government-backed loans left generations drowning in college debt (Belknap Press, August 2021).