Abstract
Since the Great Recession of 2008, a drumbeat of outrage at rising student debt has echoed throughout the news, social media, and popular culture. The outstanding contribution of Joel and Eric Best’s book, The Student Loan Mess, is to chronicle how popular concerns about student loans reach much further back in American history. From a 1958 edition of Newsweek, they tell us that students and parents alike held a “widespread belief that to borrow money for college is to mortgage the borrower’s future” (p.21).
Sixty years later, the fears of 1950s America have seemingly come to pass with a 30 percent delinquency rate for federal student loans that have entered repayment (p.138). As the authors tell it, today’s woes are rooted in the original 1950s problem or “mess” of how to pay for a radical extension of higher education from a narrow elite to most Americans. Student loans as a solution flowed naturally from “widely shared assumptions” that “because individuals who choose to receive more education benefit directly, they should bear most of the costs” (p.11).
A series of further messes have followed because of the additional widely held assumption that all students will be equally capable of choosing a good school and repaying loans after school. The analysis nicely applies the historical institutionalist insight that policy decisions are shaped by preceding policies, narratives, and their effects (Weir, Orloff, and Skocpol 1988). In the second mess, “deadbeats” refused to repay student loans until Congress made it illegal to discharge student debts through bankruptcy starting in 1976 (p.62). In a third mess, many students suffer economic and social misfortune because they can no longer get out from under debts that increase with compound interest when they miss repayments. And in yet a fourth mess, for-profit colleges are able to mislead hundreds of thousands of students to enroll in substandard programs because financing with federal loans makes it difficult for students to discriminate between colleges on the basis of price and quality.
To advance the analysis of The Student Loan Mess, however, it is important to ask what the historical alternatives could have been. Noticeably absent from the book are the major initiatives of the 1960s, 1970s, early 1990s, and Obama years for states and the federal government to jointly pay for universal access to postsecondary education. These initiatives contradict the authors’ contention that there has always been a widely held assumption that individual students should pay for their own college education. Battles over these alternatives to student loans were part of the larger struggle between business and America’s fragmented liberals over how to pay for the social state (Hacker and Pierson 2011).
Also absent from the book are the different economic and political organizations that have battled over student loans and higher education funding. Aided by the GI Bill, Cold War research funding, and the 1965 Higher Education Act, state-level New Deal liberals built zero- and low-tuition mass public universities and community colleges in states ranging from California and New York to North Carolina and Wisconsin. From 1972 to 1980, congressional Democrats championed an expansion of what would become Pell Grants as the primary vehicle to cover room and board costs for low- and middle-income Americans. Pell Grants together with low tuition at state-funded public schools provided an essentially debt-free option.
Liberals and public universities even opposed consideration by Congress of government-backed income-contingent loans (ICL) that would have provided automatic debt relief for those with low incomes after college. These groups opposed ICLs because they could have potentially undermined direct federal funding for public colleges to keep tuition low (Shireman 2017:188). Liberal opposition to expanding government-backed student loans only began to crumble in the 1980s as the Reagan Revolution froze funding for Pell Grants and state appropriations to public universities.
The Student Loan Mess’s presumption of “good intentions” among all parties, meanwhile, obscures the important role of for-profit lenders, whose corporate charters require them to place profit maximization over good intentions for students. As the authors note, Congress had created a new government-sponsored for-profit corporation in 1972 called the Student Loan Marketing Association, or Sallie Mae, in order to finance federal student loans by selling securities on the bond market (p.35). As is typical when government delivers large new programs through for-profit organizations (Hacker 2002), Sallie Mae grew into a powerful political advocate for expanding government subsidies for its profitable loan programs (Berman and Stivers 2016).
Sallie Mae and the Consumer Bankers Association played a major role in winning an essential set of student loan policy changes at the beginning of the 1990s. Federal student loan borrowing had actually remained flat at around $20 billion throughout the 1980s in 2015 constant dollars (College Board 2016). In the face of mostly Republican opposition, the political associations for student aid administrators and for higher education institutions were unable to win their longstanding policy goal to make Pell Grants a more generous full entitlement. With state funding per student also flat, higher education associations and Democratic lawmakers embraced proposals backed by Sallie Mae and the Consumer Bankers to expand federal student loans instead.
Critically, changes in the early 1990s eliminated the cap for the federal Parent Loan for Undergraduate Students (PLUS) to allow parents to borrow however much a college charged for tuition, room, and board. At the same time, the cap for federal Stafford loans to students throughout their college years was lifted dramatically. If a student’s parents could not qualify for a PLUS loan, the cap for Stafford loans to the student more than doubled from about $30,000 in 1992 to more than $70,000 in 1995 (2016 constant dollars). With college enrollment rising, annual student loan borrowing increased six-fold from its $20 billion level since the 1980s to $120 billion at its peak in 2011.
The Student Loan Mess details that Sallie Mae and consumer banks received generous subsidies to do most of this lending, with the federal government absorbing most of the losses if borrowers failed to make repayments (p.66). Administration of most federal loans by Sallie Mae and the banks in turn made it almost impossible to implement initiatives to reduce repayment burdens through programs like income-based repayment for low-income students (Shireman 2017).
Reflecting the relationship between the rise of student debt and the broader financialization of the global economy, the 2008 financial crisis left Sallie Mae and the banks in disarray. Unable to raise funds from securities markets to make federal student loans, the major commercial banks mounted no serious opposition to the Obama administration’s takeover of federal loans. Subsidies to private lenders were eliminated, and the federal government instead began to make all federal student loans directly with government funds (p.94). Billions of dollars in savings were used to dramatically expand Pell Grants and shift them closer to full entitlement status, with grants automatically funded for eligible students without the requirement of annual budget action (Shireman 2017:198). Sallie Mae is now a shadow of its former self, and the consumer banks are out of the business.
The Student Loan Mess concludes by suggesting a comprehensive approach to avoiding future messes—one that includes multiple initiatives like income-based repayment, shared responsibility for colleges, and greater funding for public institutions (p.169). It is a sensible list. Efforts to turn back the clock by the Trump administration notwithstanding, some items on the list should be easier moving forward because the for-profit federal lenders have been vanquished.
Still, comprehensive solutions remain difficult because of the foundational 1950s problem identified by the authors of how else to pay for expanded higher education. Best and Best meanwhile note that the shift from subsidies for private lenders to direct lending has given a new form to this original mess. The federal government now books about $50 billion annually in net positive revenue from its lending (p.123). So reducing student loan borrowing will come with an additional price tag of that lost revenue to the federal government. We have seen a growing appetite for comprehensive reform with a recent bevy of state and national proposals for “free” and “debt-free” higher education. But with persistent conservative opposition to increased social spending of any kind, cleaning up this student loan mess will remain a dirty and difficult job.