Let’s all blame student debt on Harvard University, shall we? After all, they established the first student loan program in 1840 — 27 years before the U.S. Department of Education was even created. And even back then, the Department of Education was designed not to administer college loans, but rather to collect information on schools and teaching that would help establish effective school systems. (Funny, now that everyone calls the school system so “broken.”)
A lot has changed since 1867, much of which can be attributed to the “GI Bill.” No longer was education looked at as a luxury. Instead, education became a necessity. What the GI Bill did was allow veterans to use benefits to pursue an education, and by 1976, nearly eight million World War II veterans found themselves in college.
Those not entitled to benefits under the GI Bill — you know, everyone else — then had to save or borrow. And so, in 1965, we got the Higher Education Act. The Act’s Title IV established “Educational Opportunity Grants” to help institutions that were aggressively trying to recruit students with “exceptional financial need.” The Guaranteed Student Loan Program — now known to the rest of us as the Stafford Loan — was then created to appeal more to middle-income students by providing loan subsidies. The government paid interest accrued during the student’s collegiate career and paid the difference between a set low interest rate and the market rate after graduation.
In 1966, we saw the National Association of Financial Aid Administrators sprout up, which was created to monitor what would become the financial aid industry.
Sound too good to be true? Well, it was. And so by 1972, the Higher Education Act was reauthorized, forming what some have called “the basic charter of today’s federal student aid system.” Jargon was tossed around and “higher education” was replaced with “post-secondary education” to expand aid to students opting to attend a junior college or trade school.
In 1980, the Pell Grant surfaced in hopes that students from low-income families would be encouraged to attend college. Congress decided eligibility for Pell Grants would be based on a family’s total income and assets, and when the State Incentive Grant Program finally kicked in, which offered matching funds to states to bolster their need-based programs, all 50 states actively started participating in the system.
What happened, however, was that college costs started to rise and the number of grants started to decline. In 1987, the New York Times published an article that read, “Students and their parents last year took out nearly $10 billion in Federal education loans,” which was “almost triple the amount of a decade ago.” Fast forward 25 years, and we’ve surpassed one trillion dollars in student loan debt. Think they would have guessed that would happen back then?
Just from 1996 to 2008, the average rose from $12,750 to $23,200. And by 2011, the average student loan debt rose even higher to $25,250. Why? Well, it doesn’t help that the average price of a four-year university is up 15 percent, which is a higher rate than in previous decades. In the 1980s, tuition increased at about 4.5 percent each year, and in the 1990s at 3.2 percent. Now, we’re around an average rate of 5.6 each year. And it’s only going uphill (or downhill) from here.
How do we fix it? Well, we’ll save that for another post, although I’m a pretty big fan of what Kansas just implemented. When faced with shrinking populations, a slew of Kansas counties started offering to pay off $15,000 of their students’ college loans. Over in Niagara Falls, New York, the local government’s even putting $200,000 toward a similar loan payoff program, according to Newser.
For all the talk of a meltdown, students loans are something rooted in our history.