Lecture Notes: Student Loan Debt and Its History

Introduction

• Private university tuition (e.g., University of Pennsylvania) in 2018-2019: over $50,000.
• Public university costs (University of Michigan):
  • Out-of-state: ~$49,000
  • In-state: over $15,000
• Additional costs include room, board, books, transportation, technology.
• Students often rely on:
  • Scholarships: No repayment required.
  • Grants: Sometimes require repayment.
  • Loans: Always require repayment.

Student Loan Debt Crisis

• Forbes: Student loan debt is the second-highest consumer debt category.
• 44.2 million borrowers owe $1.52 trillion.
• Factors contributing to high debt:
  • Easy accessibility to loans.
  • Rising cost of higher education.

History of Student Loans

Post-World War II Initiatives

• GI Bill (1944): Provided education benefits to veterans, covering tuition and fees.
• Issues: Misuse of funds by fictional institutions and scams.

National Defense Education Act of 1958

• First large-scale federal student loan program aimed at developing technical skills during the Cold War.
• Federal funding matched by colleges, students borrowed from these funds.

Expansion in the 1960s

• Higher Education Act (1965): Added scholarships and work-study programs.
• National Vocational Student Loan Insurance Act: Established guaranteed loans for vocational training.

Rising Costs of Education

• Tuition rising faster than inflation, explained by:
  • Infrastructure improvements to attract students.
  • Market-driven approach treating students as customers.

Loan Defaults and Government Response

• Increased defaults led to more grants (e.g., Pell Grants).
• Pell Grants:
  • Initially covered 90% of public institution costs.
  • Reduced to less than 25% coverage by 2004.
• Sallie Mae: Managed student loans, facilitating banks to re-lend money.

Legal and Financial Reforms

• Bankruptcy laws tightened, making it difficult to discharge student loans.
• Subsidized Loans: Government pays interest while in school.
• Unsubsidized Loans: Student pays interest, but not until after school.

Recent Trends and Challenges

• Student loan debt (2019): $1.46 trillion.
• 9.08% of loans over 90 days delinquent.
• Financial paralysis for many debtors.

Unexpected Outcomes

• Occupy Student Debt Campaign (2011):
  • Advocates free public education, zero-interest loans, fiscal transparency, and debt relief.

Conclusion

• Initial goals to increase education accessibility have led to complex debt issues.
• Suggested viewing: PBS Digital Studios' "Monstrum" show and other videos on class and American culture.
• Encouragement to engage with related content and discussions.