Fixing the Student-Debt Crisis Isn’t Enough

Many Americans expressed relief when the Biden administration announced this month that the moratorium on federal student-loan repayments would be extended through January 2022. That reprieve is certainly good news for borrowers, but even a total overhaul of the federal student-loan system wouldn’t get to the core of higher education’s economic troubles. For that, we need robust, direct governmental support for colleges — especially small, struggling campuses. Most colleges have historically relied on a delicate mix of government support, philanthropy, and tuition to stay open. Covid-19 upended that complex financial edifice, giving rise to new levels of anxiety about how colleges, particularly small ones, could safely and affordably reopen.

Such fears aren’t new. They have long been a part of American higher education’s complicated history — including in the sixties, the celebrated salad days of state and federal support. We’re used to thinking of the 1965 Higher Education Act as ushering in major governmental investment in postsecondary education, and it did. But in prioritizing government-backed student loans over direct support to colleges, the act also contributed to the shaky economic terrain we inhabit today.

In the fall of 1968, just a few years after the HEA’s celebrated passage, John F. Kennedy College — a small institution in Wahoo, Neb. — was in serious trouble. Weeks before classes were supposed to begin, desperate undergraduates planned a bazaar with a kissing booth to raise money to keep the campus solvent. The Save Our School Committee got some help from locals who told Newsweek that the three-year-old college was “the biggest industry in Saunders County.” The secular, self-supporting liberal-arts college meant a lot to the 800 students who paid $900 a semester for room and board, tuition, and other fees. Those revenues, President Theodore Dillow explained to Newsweek, hardly covered operating costs, much less the capital required for new facilities and scholarships. Dillow had already warned 25 professors he could no longer pay their salaries. The entire campus would close unless he could quickly raise $207,000.

To try to raise that money, seven students piled into a beat-up station wagon and drove all day and all night, seeking donors in New York City 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 went uncovered.

Paul Boyajian, a Virginia resident working as director of the Office of Equal Opportunity in the U.S. Department of the Interior, found that silence intensely frustrating. He wrote angry letters to congressional education subcommittees and major media outlets, complaining that “not one Washington-area newspaper or television station” considered these “young, clean, unbearded, simply but appropriately-dressed students … newsworthy.” Especially given “the hue and cry for still more institutions of higher learning,” it seemed preposterous to him that this rural college named after the recently slain president might be lost. “What purpose does student aid serve,” he asked, “when there is no college to attend?” Something had to be done, he insisted, about “the unrealistic gap that separates small needy private colleges from the well-endowed massive state and private institutions.”

He received only one reply, from a close friend in the Lyndon Baines Johnson White House, who wrote that the administration had “concluded that there was no way that we could be of help.” After all, “the Eisenhower College in New York is in a similar predicament.”

Those campuses and others struggled in the late 1960s because the federal government had placed a premium on student lending, rather than robustly funding colleges and universities to free them from their historic reliance on tuition. The guaranteed student loan program — part of the 1965 Higher Education Act — aimed to make lending to students more attractive by federally backing those loans. In effect, the government promised to bear the cost should a borrower default, protecting private lenders from risk.

This approach was typical. Many Americans today do not realize the extent to which the Johnson administration’s efforts to build a Great Society relied on finance, rather than direct spending. Historians have, after all, spent years highlighting health care and schooling legislation as signature sixties achievements. But Great Society liberals really just extended New Deal experiments in offering citizens government-guaranteed financial products (like federal unemployment insurance and long-term mortgages) instead of robust support. Medicare, after all, is health insurance, not health care. Such public-private financing strategies did not defeat poverty and were less transformative, in the long run, than their architects had hoped.

The guaranteed student-loan program exemplified how guaranteeing bankers a return on their investments has cost students and taxpayers without truly shoring up the finances of colleges. Undergraduates qualified for a guaranteed loan if financial-aid officers determined that their family’s adjusted income was less than $15,000. Campus staff gave young people the documentation needed to prove admission and guaranteed-loan eligibility, which aspiring students brought to participating lenders who decided whether or not to extend credit. Congress never promised students, parents, or campuses that bankers would lend. Lawmakers simply hoped that assuring bankers of repayment would be enough to spark a new student-loan industry to finance higher education, just as the federal mortgage program had transformed home ownership during the Great Depression.

Guaranteed lending once seemed, as one historian insisted, “a small price to pay” for the Higher Education Act’s historic passage. Federal college aid between 1963 and 1966 more than doubled, rising from $1.4 billion to $3.7 billion. Scholars have linked that jump to the exponential growth of the country’s student body between 1955 and 1974. The number of students tripled, the percentage of 18- to 24-year-olds pursuing higher learning almost doubled, and the number of community colleges more than doubled. Almost every state started or developed a new public research university. Campuses awarded almost five times as many master’s degrees, as well as almost quadruple the number of doctorates. More women and students of color also matriculated.

These were real benefits — but 50 years later, the costs of lawmakers’ faith in government-guaranteed lending have become visible, too. State and federal support for higher education has declined sharply since the 1970s, when tuition rates at public and private institutions began the steady climb that really only made headlines in the Great Recession. Nonprofit campuses across the country remained committed to not charging the full cost of instruction, even as inflation increased the expense of repairs, expansions, and infrastructural upgrades to phone lines, email systems, and Wi-Fi. State and federal lawmakers across the country did little to help cover costs during decades in which cutting taxes and spending was popular among Democrats and Republicans alike. “Higher education is a discretionary state expenditure,” education experts explained in 2004. “Every public official knows that colleges and universities can raise tuition to compensate for state cutbacks.” Politicians also recognized that students and parents could borrow what they needed, either through the guaranteed student loan program or through the private loans that a growing number of financiers also offered.

The increasing number of students and parents forced to borrow over these decades has received far more coverage than the campuses struggling to compete for earmarks, donors, and students — like Nebraska’s unfortunate Kennedy College. That small campus closed in 1975, just 10 years after its founding and the Higher Education Act’s passage. Those years saw a spike in campus closures and mergers nationwide. Americans of all ages had fewer options for continuing their educations during decades when knowledge industries, like finance and medicine, eclipsed manufacturing as drivers of both economic growth and individual opportunity.

That history is important to remember now. We’re in the midst of a welcome national conversation about the student debt crisis, and there’s plenty to say on that front. Significant cancellation of the $1.7 trillion owed by borrowers would offer vital, immediate relief to more than 45 million Americans. But we also need to think bigger if we want to prevent public goods, like colleges and universities, from becoming private luxuries. It’s time to overhaul our existing models for financing higher education.

Congress is now debating what infrastructure is needed to build a more prosperous and equitable new normal as we live with Covid-19. We must recognize colleges as essential components of that infrastructure. Investing in community colleges, as the Biden administration has proposed, is a first step. But far more is needed, including new research funding for historically Black colleges and universities and minority-serving institutions. The College for All Act, introduced by Rep. Pramila Jayapal, Democrat of Washington, and Sen. Bernie Sanders, Independent of Vermont, is a good model, offering enough support to make community colleges tuition free; to guarantee that families earning less than $125,000 can enroll in public colleges, as well as nonprofit minority-serving institutions debt free; and to set aside $10 billion for student-support programs at underfunded institutions. Those ideas have the potential to create a real path toward building a high-quality, accessible higher-education system capable of serving the entire country’s needs.

A version of this piece appears in the author’s book, Indentured Students: How Government-Guaranteed Loans Left Generations Drowning in College Debt (Belknap Press, August 2021).