45 M Debt-Ridden American Students: Paying $6B Monthly to Wall Street
It is time to recognize that the cruel experiment of financing higher education through student loans has failed. Student debt captured 46 million people and their families weakening the value of higher education. How did we let this happen to our kids?
Key takeaways:
- The United States believes that education serves a common good and should be available to everyone to pursue their dreams.
- This changed in recent decades. The government encouraged people to go into debt to pay for their own education promising higher wages.
- Student debt harmed our nation’s fabric and resulted in 46 million Americans with student debt.
How did the concept of Public Education become an American founding value?
The democratic principle of tuition-free education in our country pre-dates the founding of the United States. The first public primary education appeared in the Massachusetts Bay Colony in 1635. Furthermore, the local legislature formed Harvard College the next year to make education available to qualified students.
Before the ratification of the Constitution, the Confederation Congress enacted the Land Ordinance of 178; which required newly established townships in territories ceded by the British to devote a land section for a public school. It also passed the Northwest Ordinances, which set out how the territories could become states.
Among those guidelines was a requirement to establish public universities, and stipulate that “the means of education shall forever be encouraged.” After the nation declared independence; Thomas Jefferson argued for a formal education system funded through government taxation.
Jefferson’s vision took form over the course of more than a century, as state and local governments began creating primary schools and then high schools.
How did higher education become a Federal Government program?
The federal government became involved in higher education in the 19th century by creating land grant colleges and other institutions. Used primarily to teach agriculture and education after the Civil War.
State universities and colleges rapidly expanded as well. By the middle of the 20th century, low-cost or tuition-free education was available in many American states.
These institutions provided opportunities for populations such as formerly enslaved African Americans and impoverished people of all races.
The G.I. bill helped 8 million Americans
After the Second World War, the federal government once again turned to education to promote opportunities for its citizens; and economic growth for all. The G.I. bill paid educational expenses for 8 million people. Without regard to individual wealth, which helped create a robust middle class and contributed to the vibrant growth economy of the 1950s and 1960s.
While those opportunities were still denied to many people due to racism; efforts were underway to improve educational access for people of color.
The Reagan effect: more debt for students
The Reagan era ushered in a belief in government programs, including education, that stood in the way of people’s dreams. Public goods were investments, not expenses. For these reasons, among others, a nation that had expanded publicly funded education for centuries decided to reverse course. Instead of funding higher education on the principle that it benefits us all; the country began shifting the cost to individual students.
How did the Cold War trigger access to student debt?
Concerned about competition with the Soviet Union, policymakers wanted to increase students’ math and sciences capabilities. To do that, the country needed more teachers. So, lawmakers offered loans to college students; with the opportunity to have half the loan canceled after 10 years if they became teachers.
In the 1950s, the National Defense Education Act created student loans as an experiment. The experiment failed.
The experiment was also cruel.
Over the years, the student loan program expanded; claiming that a student’s personal investment in their education was an “investment” that would pay off in higher wages. Researchers have not proved that the student loan program led more people to become teachers, despite multiple attempts to do so.
How bankers got in on the deal?
Banks were brought into the process and given considerable incentives to issue student loans. This opportunity was given to wealthy bankers with little thought of the damage to an economically sustainable future.
Proponents of financializing the cost of higher education argued that it was cheaper to lend money to students than it was for federal and state governments to provide grants for their education; even after paying subsidies to the private sector for their loans.
An entire industry grew up around this process.
State and nonprofit guaranty agencies were created to ensure the loans. Agencies got paid, no matter what: when loans were issued, when loans became delinquent when borrowers defaulted; and when they collected on defaulted loans.
In response, most states created guaranty agencies. So they could make money from people who needed to borrow to pay for ever-increasing tuition and fees. Now, states had an extra incentive to cut funding for public higher education. Not only would they save on expenditures; but they could increase the need for students to borrow, which increased their revenue. In many cases, these guaranty agencies don’t handle the loans themselves. They pass the work on to private debt collectors who take collection fees and are aggressive in handling cases.
Why student debt ballooned in the 90s?
The system took on a life of its own. By the mid-1990s, student loans had surpassed grants in funding students’ higher education. But a system built on debt financing only works if borrowers pay back their loans.
That led Congress to make the system even crueler with the Bankruptcy Amendments and Federal Judgeship Act of 1984; which exempted student loans from bankruptcy proceedings and subjected borrowers to draconian collection tools. These tools included wage garnishment without a court order and the seizure of Social Security checks and tax refunds.
The Clinton and Obama administrations attempted to lessen the burden slightly by allowing the federal government to lend directly to students while introducing income-based repayment options. Still, the system’s fundamental cruelty remains unchanged today.
How to help our 46 million debt-ridden American students:
- Let your elected officials (Senate, Congress) know that they want the government to cancel all student debt.
- Studies show full debt cancellation will benefit all of us by boosting our economy; and creating over a million jobs each year.
It is time to recognize that the cruel experiment in financing higher education through student loans has failed. It has captured 46 million people and their families in a student loan trap; including people who received vocational training and has weakened higher education’s financial strength.
Inescapable debt is a major driver of social collapse. It has made the racial wealth gap worse and weakened the entire economy; as debt holders are prevented from buying homes or consumer goods, starting families, or opening new businesses. It’s time to restore funds for higher education and cancel student debt for the victims of this failed experiment.
