At private universities like the University of Pennsylvania, where I went as an undergrad, the average tuition and fees in the 2018-2019 school year are over $50,000. And at public four-year universities like the University of Michigan in Ann Arbor, the cost for out-of-state students is around $49,000 and in-state students over $15,000. Of course, these numbers do not include room, board, or other expenses, such as books, transportation, and the personal technology that is increasingly required to keep up with all of the work.
When you throw in all of these, the final numbers can be truly staggering. So how on earth do American students pay for this? As most of you know all too well, most rely on scholarships, grants, and loans to cover their costs.
Scholarships do not need to be repaid. Grants sometimes do. And student loans, like death and taxes, always come back to bite you because they always need to be repaid. According to Forbes magazine, student loan debt is the second highest consumer debt category next to mortgage debt.
44.2 million borrowers owe $1.52 trillion. The numbers are mind-boggling, but how did our society get here? The answer is twofold.
The US government and private lending companies have made accruing student loan debt very easy, and the cost of American higher education has risen enormously in recent years, a situation related to many factors, not the least of which is the availability of student loans. Today, I will break down the history of student loan debt and explore why such debt has come into being and become so commonplace for so many of us. In their book on student loan debt, sociologist Joel Best and quantitative researcher Eric Best a father-son duo, explained the evolution of student loans as a series of snowballing messes.
The first mess they identify began as a result of World War II, as the government wanted to ensure that more Americans had access to higher ed, and also to prevent them from overloading a labor market that might not have room for them. In 1944, the Servicemen's Readjustment Act, commonly known to us as the GI Bill, offered benefits for veterans, including loans to help purchase homes, farms, and businesses. It also sent payment directly to the schools up until 1952 to cover tuition and fees, book costs, and room and board, and it gave veterans a living allowance.
7.8 million veterans received some educational benefits from this program. Sadly, a third of the money in the educational part of the GI Bill was wasted on fictional institutions, job training scams, and real schools that inflated their fees. Clearly, more oversight was needed. But instead of turning their eyes to the bottom line, the US government turned their eyes and educational ambitions to the stars. After the Soviets launched Sputnik and threatened to dominate the space race, the federal government passed the National Defense Education Act of 1958. This was the first large-scale federal student loan program for higher education in the US.
Its rationale was lofty, to cultivate an army of super nerds who could deploy their mad science, tech, and language skills to the United States. to defend the nation during the Cold War. The Act states, The Congress hereby finds and declares that the security of the nation requires the fullest development of the mental resources and technical skills of its young men and women.
The present emergency demands that additional and more adequate educational opportunities be made available. The defense of this nation depends upon the mastery of modern techniques develop from complex scientific principles. It depends as well upon the discovery and development of new principles, new techniques, and new knowledge.
So, here's how the first student loans distributed under this program worked. The federal government made money available to colleges. Colleges would then match at least $1 for every $9 that the government provided.
Students can then borrow this money as a loan to cover costs. It seemed like a pretty good fix. In 1965, the Higher Education Act added scholarships and work-study programs into the mix. That same year, the National Vocational Student Loan Insurance Act established federally guaranteed loans for vocational training.
More students than ever had access to loans, which meant that more people had access to higher ed. But here's the rub. The cost of higher education was not only rising, but it was also outstripping the rate of inflation, or the percent that prices change from one year to the next.
Here's a crude example of how inflation is supposed to work. Imagine that tuition and fees for a given school year are, say, $30,000, and the cost of a trip to the grocery store is about $100. If inflation were, say, 2%, we might expect the same groceries to cost about $102 during the next year.
We would therefore expect tuition and fees to reach $30,600 if they rose at the same rate. However, in reality, tuition and fees in the U.S. were rising at a much higher speed than inflation of other products. But why was this happening?
In part, it was due to colleges making extravagant changes to attract and keep top students, because they were more statistically likely to land high-paying jobs and repay their debts on time. This involved updates to infrastructure like dorms, classrooms, eating facilities, and fitness centers in order to increase their posh appearances and justify skyrocketing costs. It was also because students were being treated more like customers and less like students, and they were willing to pay for these higher fees in order to get the perks.
In fact, it became so easy for low-and mid-income students to finance college with loans that they could afford. Many stopped paying attention to the cost of higher ed. The availability of student loans meant that colleges could raise prices without really affecting their enrollments.
As a larger number of people took out loans, there was a greater chance that more individuals would default on those loans. Add to this one more wrinkle. Vocational schools were generally for-profit, so they were more focused on enrollment numbers to increase their access to government money.
As some institutions lowered admission standards to fill seats and line pockets, They filled their classes with people who were more likely, for whatever reason, to drop out of school, causing a spike in student loan defaults. One response to these defaults was for the federal government to offer more grants, as opposed to loans, to students from low-income families. In 1972, Senator Claiborne Pell created the Basic Educational Opportunity Grant Program, later to be renamed Pell Grants. As historian Andrew Delbanco reports, In 1976, the maximum federal Pell Grant covered nearly 90% of attending a four-year public institution.
But by 2004, these grants would cover less than 25%, causing students from this demographic to supplement their grants with even more loans. Another federal response to the spike in defaults was creating the Student Loan Marketing Association, also known as Sallie Mae, an entity mandated to manage student loans. So here's how Sallie Mae worked. A bank lends a student money.
The bank sells this loan to Sallie Mae, enabling that bank to re-lend the money to a new customer. Sallie Mae issues a government-guaranteed debt on the loan, which makes the loan a relatively safe long-term investment. Sallie Mae then bundles these loans and sells them to investors.
Though Sallie Mae has since been privatized and basically none of what I told you still holds, it was a convenient arrangement, with an unexpected side effect on the number of individuals that would leave school in debt. If this is the first mess that the best identify related to student loans, the second has to do with how the government handled those who defaulted on their loans. In 1976, an amendment to the Higher Education Act made it illegal to declare bankruptcy within the first five years of one's repayment period.
And in 1990, this ban was extended to seven years. Later amendments made borrowers ineligible to discharge their student loans through bankruptcy unless they could demonstrate undue hardship. Other policies made it easier to repay one's debt by delaying the start of payments or by reducing the size of installments, options that would ultimately cost the borrower more in interest payments.
And today, there are two main categories of student loans, subsidized and unsubsidized. Subsidized loans are for those who can demonstrate financial need. For years, the federal Perkins Loan Program provided funds for college or career school for students with financial need. The Perkins Program ended on September 30th, 2017. Today, students who demonstrate financial need can apply for subsidized Stafford loans, which are available regardless of one's credit score, and let's face it, most 18-year-olds don't exactly have a credit score yet. But with these loans, the government pays any interest that accrues on the loan while the student is still in school.
Unsubsidized loans are for students who need help paying for higher education, but have a smaller demonstrated financial need. With an unsubsidized Stafford loan, students are responsible for paying back the interest that accrues while they're in school, but they don't have to make payments until they leave school. Parents can also take out loans to pay for the education of their children, called plus loans. Plus loans are made by private lenders, or can be direct loans from the federal government if the borrower proves financial need. These require a review of credit history, are not subsidized or guaranteed, and repayment begins immediately.
Plus loans are also available. to graduate or professional students. Finally, there are a wide variety of direct loans available, which can be taken from banks or other private lending institutions.
Many students find it annoying to keep track of so many different kinds of loan payments when they graduate, and they consolidate or combine their loans with one agency for a fee. This makes it easier to track the payments. It also allows individuals to lower their monthly payments by extending their repayment period.
In February 2019, The Federal Reserve Bank of New York's quarterly report on household debt and credit reported that outstanding student loan debt was at $1.46 trillion. And it had increased, if you can believe it, $20 billion since the third quarter of 2018. It also reported that 9.08% of student loans were 90 days or more delinquent. This debt can lead some into another mess, as the best describe it.
financial paralysis for the individual. So, the historical catch-22 that is student loan debt in the US plays out in a couple of ways. Because the government and private banking institutions created student loans in order to increase school enrollment and spread access to education. But the ballooning cost of university and vocational training, plus the increased complexity of loan initiatives, means that more students are defaulting on loans, dropping out, and leaving school in debt.
So a solution that was initially meant to make education more accessible and affordable has created an environment where exactly the opposite is true for many looking to get higher degrees. But turning students into customers has also created unexpected pushback from frustrated debtors. Take, for example, the Occupy Student Debt campaign, which was launched in 2011 as a student debt abolition movement.
And it's based on four basic principles. The first, Free public education through federal coverage of tuition fees. The second, zero interest student loans so that no one can profit from debt.
And third, fiscal transparency at all universities, public as well as private. And four, the elimination of current student debt through a single act of relief. Monstrum is a new show from PBS Digital Studios about monsters, myth, and lore.
The show is written and hosted by Dr. Emily Zarca, who has a PhD in literature with a focus on monsters. Basically, she's a doctor of monsters, and that's a thing. So head to the link in the description to check out the show and find out the origins of iconic monsters and what these creatures say about us. So what do you think?
This is the third video in our series on class and American culture. If you'd like to watch another one, then check out our video on private prisons. And if you like Origin, be sure to like, subscribe, and follow us on all social media.
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