Borrowed to the Hilt

What an awful time to require more than 40 million Americans to resume repayment of their student loans. After a reprieve of more than three years, the collection apparatus has roared back to life at a time when pandemic-era relief programs, eviction moratoriums and child tax credits among them, have long-since expired, and Americans across the board are struggling to cope with rising prices. The Biden administration has, however, rolled out a new income-driven repayment plan, Saving on a Valuable Education (SAVE), that promises to blunt the pain for some.

Cute acronyms aside, SAVE will have real benefits: monthly payments will be based on income and family size, not how much is owed. Those payments will also be capped at 5 percent of a borrower’s monthly income. Americans making less than $30,000 a year may pay $0 a month. Borrowers will no longer need to worry about balances ballooning if their monthly payments do not cover all the interest charged, a major reason many Americans have been left owing more than they borrowed. They won’t be paying forever either. After twenty or twenty-five years of payments, whatever balance remains will be forgiven. Borrowers in one of the existing income-driven repayment programs will even be automatically enrolled; everyone else will need to apply through an application that is actually quick, unlike the seemingly endless Free Application for Federal Student Aid. In the end, SAVE might even end up costing more than Biden’s limited debt cancellation program that the Supreme Court struck down in June.

But SAVE isn’t going to rescue the tens of millions of Americans who together owe more than $1.7 trillion. Some loans don’t qualify. A new administration could easily nix SAVE, which is not an act of Congress. Only legislation could make SAVE permanent or, better yet, address the real reason Americans have been struggling to pay for college for decades. Democrats and Republicans put profits over people when they crafted federal higher education policies that all but require Americans to go into debt to become the teachers, nurses, and doctors this country needs.

A lot of the problems that SAVE tries to correct can be traced back to a law that most history textbooks celebrate. The 1965 Higher Education Act appeared, on its face, to be a major investment in higher education, which, up to that point, had been largely under the control of states, religious groups, and wealthy donors; some campuses still bear the latter’s names, like Andrew Carnegie, Andrew Mellon, and Leland Stanford. The law did, in fact, devote money to campuses and their libraries; it also included provisions for grants, work-study options, and student loans. In signing the bill, President Lyndon Johnson seemed to be promising all Americans a path to college: “Education is no longer a luxury,” he insisted. “Education in this day and age is a necessity.”

At the time, student loans seemed really risky. A banker cannot repossess and sell a student’s credit hours or degrees to someone else. But the Guaranteed Student Loan Program assured lenders they would be repaid. The country was in the midst of building a Great Society while waging a War on Poverty at home and fighting communism abroad. All that was expensive. Better to use tuition revenue—not taxpayer money—to pay for the new dorms, classrooms, and campuses required to educate all those Boomers. And looking out for bankers had worked out well before. The federal mortgage program and its guarantee for lenders had turned a country of renters into a nation of homeowners without a costly public housing program. Student lending was going to be as safe as borrowing for a house.

Everyone would surely benefit. Alumni would have ten years to pay back banks with interest. Congress would set the interest rate so that it would be relatively low. At the time, it was 6 percent—slightly less than the federal mortgage rate. The Civil Rights Act, passed the year before, stipulated that federal funding could not go to institutions that discriminated on the basis of race, sex, religion, or country of origin. In a booming economy, graduates of all races would obviously find jobs. Inequality was destined to vanish.

But guaranteed student loans, like the mortgage program that inspired them, actually worsened inequality. With the Higher Education Act, lawmakers asked low-income Americans to spend more, over time, for the same degrees that wealthier families could pay for out of pocket. Instead of appropriating enough direct funding to universities to keep tuition low, Congress instead focused on “assisting” students—which left them holding the bill. Even if financial aid officers gave a student one of the federal grants, that scholarship wasn’t enough to cover all college costs.

Profit was the priority, including in the Higher Education Act’s most celebrated amendments. Consider the 1972 program that gave out what we now call Pell Grants, small scholarships for low-income students. Rhode Island Democratic Senator Claiborne Pell thought that was a clever way to help applicants of color because he assumed most recipients would be Black. Since this scholarship came directly from the federal government, low-income students would no longer be at the mercy of the campus financial aid officers handing out federal grants, work-study opportunities, and loans. But even Senator Pell wanted to keep these scholarships small. They were never supposed to be enough to cover the full costs of going to college—low-income students would have to work and borrow. Admittedly, these grants covered even less than he had hoped because Congress did not appropriate the full amount the law permitted, even in the program’s infancy. While the Obama and Biden Administrations pushed to expand this now beloved program, it still covers only a percentage of college costs, even for community colleges.

In 1972, lawmakers were far more eager to create the Student Loan Marketing Association, nicknamed Sallie Mae, to buy, sell, and collect student debt. This clearinghouse epitomized Democrats and Republicans’ shared concern for profits over people. Banks had not been eager to participate in the Guaranteed Student Loan Program, even though Congress promised them a return on their investments. So lawmakers once again took inspiration from the federal mortgage program, which had created the Federal National Mortgage Association to ease the buying and selling of housing debt. Fannie Mae had created a mortgage industry when there really hadn’t been one. Sallie Mae seemed the obvious way to create a student loan industry to keep the federal government off the hook for adequately funding colleges and universities.

Sallie Mae made student lending irresistible when the economy stagnated in the 1970s. Bankers could now more easily profit off of student debt. Some began experimenting with so-called private loans. The federal government did not assure those student loans, but they were not subject to the Guaranteed Student Loan Program’s restrictions: bankers could charge higher interest rates and demand repayment sooner. Private loans were still risky, so financiers hedged their bets on them by still participating in the Guaranteed Student Loan Program. That way, at least a part of their portfolio was certain to pay off. Federal officials and lawmakers did even more to insure this by working diligently to make it almost impossible to discharge student debt in bankruptcy proceedings. By the mid-2000s, it was one of the few debts that can’t be erased.

At the same time, federal and state governments began to cut back on direct funding for higher education, creating immense demand for federal and private student loans. “Every public official knows,” a higher education consultant explained in the early 2000s, “that colleges and universities can raise tuition to compensate for state cutbacks.” And raise tuition they did: since 1969, tuition at public, four-year colleges has increased over 280 percent.

Why didn’t Americans complain? Actually, they did. Lawmakers just didn’t care. Voters had been writing to senators, representatives, and presidents about how unaffordable college was since Franklin Delano Roosevelt promised Americans a New Deal. Letters continued after the GI Bill helped some 2.2 million veterans go to college. President John F. Kennedy even emphasized parents’ concerns in a special 1962 message to Congress, where he pointed out that college expenses had risen 90 percent since 1950.

Pleas continued after Congress passed the Higher Education Act because college costs continued to climb. Department officials and aides to President Nixon called those heartbreaking letters “grief mail.” Michigan Democratic Representative William Ford expressed surprise at the wrenching stories that students told at the first hearing dedicated to their concerns—in 1991. Ford suggested in that cramped room that students keep speaking out. “I’m not advocating burning any campuses or shutting them down,” he stressed, “but if it’s necessary, I’m not telling you you shouldn’t.”

Things briefly seemed like they might change under Obama. On the campaign trail in 2008, he stood out for having just recently paid off his student loans, and he came into office itching to get rid of the Guaranteed Student Loan Program, which he called a “a sweetheart deal . . . that essentially gave billions of dollars to banks to act as unnecessary middlemen.” He wanted to replace guaranteed loans with direct loans from the federal government, an option first made available to some colleges and universities in 1992. But the 2010 budget reconciliation legislation that more famously enacted Obamacare did not get the federal government out of the student loan racket that Congress had created. Still, Obama celebrated the resulting Health Care and Education Reconciliation Act as “two major victories in one week that will improve the lives of our people for generations to come.” Thereafter, federal student loans would only come directly from the federal government. But the complicated Guaranteed Student Loan Program was merely dead, not buried. The law did not wipe out the debts owed through the original loan program. The student lenders that had gotten fat off of it—including Sallie Mae, which had privatized in 2004—still made money managing direct loans and their various repayment options for the federal government. They are the ones now collecting payments.

We have activists and whistleblowers, not Congress, to thank for even getting something as limited as Biden’s thwarted forgiveness plan and SAVE. Public outcry about student lending increased in the 2000s when states also began investigating how bankers preyed on students and parents. In 2007, New York uncovered bankers flagrantly offering Black applicants much more onerous terms than white borrowers. Educational Department officials also drew attention to lenders improperly collecting millions in federal subsidies. In 2008, Congress finally demanded more data on the student loan program from campuses, lenders, and states—more than forty years after the Higher Education Act’s passage. Since then, researchers have churned out grim reports on the many ways federal student loan programs have left Black and brown borrowers, especially women, owing more for the same degrees their white, male classmates paid for.

Those findings hardly surprised the many Americans energized by the Occupy Wall Street movement. Their encampments and protests may have been relatively short-lived, but the questions they asked about why Americans were drowning in housing, medical, and student debt mattered. Their Rolling Jubilee campaign audaciously used small donations to buy up and abolish medical, student, payday loan, and probation debt. That kind of grassroots work is what got Democrats to do something about student debt. Bernie Sanders led the charge to demand mass cancellation—a much better word than forgiveness. No one needs to be forgiven for going to college, especially if loans are the only way most Americans can try to afford to become technicians, computer programmers, journalists, or teachers. On the campaign trail in 2020, both Sanders and Elizabeth Warren proposed wiping out student debt and making public colleges tuition-free. The rest of the Democratic candidates for president also offered some kind of lip service to the student debt crisis, though only progressives kept the pressure on Biden to do something after he was elected.

Last year, he followed through, announcing that the federal government would cancel up to $20,000 in federal student loans. But debtors had to apply to the Department of Education to have the federal loans private banks managed forgiven—giving conservatives time to mount a legal response that culminated in the Supreme Court striking down the plan this summer. Now, we have SAVE and the announcement last week that the administration had canceled another $9 billion in select student loan debt, partly through the various fixes that the administration had made to the repayment plans that lenders had run so poorly for years.

People should sign up for SAVE. But it’s just another technocratic salve that could be wiped away by the next president or education secretary. It’ll take a lot more to dismantle an industry born of putting profits over people. That’s the reason Americans have to start saving for those invaluable educations before their kids are even born. Only getting lawmakers to completely change how college is paid for will save the next generation of accountants, nurses, and doctors from drowning in debt.