This is the first in a series of posts examinging the student loan system in the USA.
A boom in higher education demand in the late 1970s saw cooperative problem-solving between the private and public sectors to address a key constraint: funding. Institutions for higher education expanded services, and therefore costs, to meet growing demand. As costs grew, so did tuition, and society faced the challenge of ensuring the demand for higher education did not reduce its accessibility based on income. The federal student loan programs created to address this imbalance were well intended but have broken. Though enrollment increased dramatically over the last several decades - the growth in the cost of tuition has outpaced growth in wages - resulting in the $1.8 trillion student loan crisis. Below we summarize the evolution of legislation governing federally funded loans for higher education - all the way from the GI Bill of 1944 to the CARES Act of 2020.
The Path to $1.8 Trillion
Almost 70 years ago, our federal government made an effort to improve access to education by lowering financial barriers to entry. The effort to attract private lenders to share the risk and rewards ended up creating incentives for the lenders and educational institutions at odds with the original intent. Difficult repayment experiences increased the default rates leading to declining trust in the programs. Attempts to reform the growing student debt crisis struggled with political and private interests keeping costly and inefficient programs like FFEL alive for decades while private parties profited. By the time legislators started taking action again in the mid 2000s, the student loan debt programs were more burdensome than empowering. Efforts to right the mistakes and focus programs on education are admirable but require more care and broader provisions.
In our next post we look at the asymmetry between the cost of education and how society rewards it.
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