Guest post: Biden’s Student Loan Cancellation, by Prof Elizabeth T. Shermer [The Exchange]

Last August 24th, the Biden Administration announced a three-part plan to pardon and relieve thousands of US citizens of up to $10,000 in student debt. Shortly after, many voiced critics claiming that no one had helped them pay their loans and so why should the government do so now? The Exchange (BHC’s weblog) asked Prof Elizabeth T. Shermer (Associate Professor of History at Loyola University Chicago) to help us understand the current situation and the relevance of the 2022-2025 plan through the history of student lending in higher ed in the United States.

Also by E.T Shermer, Indentured Students: How Government-Guaranteed Loans Left Generations Drowning in College Debt (HUP’s Belknap Press 2021) and for The Washington Post, (July 28th 2022) History explains why the left is mad over Biden’s student loan relief. Follow E.T Shermer on Twitter @etshermer

Biden’s Student Loan Cancellation

Elizabeth Tandy Shermer,

“Many of you had to leave school because the financial strain was much too high,” President Joe Biden admitted when he announced plans to forgive some student debt in late August 2022. “The burden is especially heavy on Black and Hispanic borrowers, who on average have less family wealth to pay for it.”

Those facts differ a lot from Biden’s offhand remarks at a February 2021 town hall when he declared “I will not make that happen” when asked about student debt cancellation. He muttered something about “it depends on whether or not you go to a public university or a private university,” like those “who have gone to Harvard,” which is one of the wealthy institutions that actually have no-loan policies for undergraduates.

Biden’s about-face reflects a lot of common misunderstandings about paying for college in America that have changed as more data and research has become available about who actually borrows for school and cannot pay those loans back.

Most Americans have historically struggled to afford college even though tuition rates might seem cheap now. President John F. Kennedy warned lawmakers that many Americans were priced out of college in 1962 when college costs had risen 90% since 1950. The roughly $7,000 then needed to pay for a four-year degree was prohibitively expensive when “one-half of all American families had incomes below $5,600.”

But even those numbers fail to capture the financial sacrifice of going to college in the past and now. Students have always sacrificed time not spent working for wages, which impacted how much they could contribute to their family’s income, whether on a nineteenth-century homestead or office job, like the ones Harry Truman worked after he had to drop out to support his parents in the early 1900s.

Campuses, usually wealthier institutions, have historically offered some help with tuition, usually in the form of scholarships or jobs. Loans were relatively rare until state and federal lawmakers started experimenting with them in the mid-twentieth century because they were so risky. After all, course credits and degrees could not be repossessed and sold to someone else if someone failed to pay. Collateral was also admission to colleges and universities that have historically relied on tuition as one source of revenue.

A lot of Americans insist that this need, especially by state schools, for tuition revenue is new. Researchers have shown that there were deep cuts to state support during the Great Recession but running, let alone expanding, campuses to meet demand has always relied on a lot of creative financing. As scholar Virginia Sapiro has shown, many campuses struggled to remain open throughout the nineteenth and twentieth centuries when they competed for donors, state allocations, and students able to pay tuition. Her research even shows a spike in campus closures after the 1965 Higher Education Act’s passage, which reflects how that storied legislation did not provide the robust, direct federal funding needed to keep costs down and campuses open. State governments were also far less generous than many assume before the 1970s ushered in an era of lawmakers, in both parties, looking for ways to cut taxes and spending. Many of the schools endowed through the 1862 Morrill Act’s sale of Indigenous land, often violently seized as the Land-Grab Universities project has shown, did not get the resources needed from state legislatures to operate without charging tuition. California lawmakers, in fact, stood out for the money they were willing to allocate to the University of California, which still relied on a lot of wealthy donors to keep the campus tuition free for in-state students from the late nineteenth century until the mid-twentieth century.

Textbooks are also misleading about how much direct help the federal government provided for higher education’s storied, rapid mid-twentieth-century expansion. The Roosevelt Administration, for example, never considered bailing out the many colleges and universities teetering on the brink of bankruptcy during the Depression. New Dealers instead allowed public campuses to apply for matching loans and grants for improvements and repairs, which they considered a way to offer work relief, not expand the academy. Congress also did not provide much help for campuses struggling to accommodate the many veterans eager to enroll through the GI Bill, which left many soldiers and their families studying in cramped classrooms and living in military surplus, like Michigan State’s Quonset Village. More than a decade later, the 1958 National Defense Education Act created opportunities for campuses to apply for resources to bolster science, mathematics, and foreign language departments, which hardly helped campuses increase the resources necessary to meet the anticipated demand for college degrees predicted as the first of the Baby Boomers made their way through high schools across the country.

Today’s student loan crisis grows out of how much federal lawmakers preferred to offer tuition assistance instead of the direct, robust support that would have kept costs down as demand increased. New Dealers ignored college presidents' demands for a loan program during the Depression since student lending epitomized the kind of risk that their banking reforms sought to lessen. They instead preferred to offer students a chance to work so that they could pay for fees, books, and living expenses. But the first work-study program was fundamentally about managing the labor market because it kept young people out of competition for jobs, off of relief rolls, and gave them the skills to improve their individual abilities to compete in what would also be an improved labor pool. The celebrated GI Bill was also a form of tuition assistance to forestall unemployment and improve the overall quality of the US labor force. It covered the tuition and subsistence needs of soldiers who had already fought for their country. Congress did not start experimenting with lending until they could not decide on how to assist students during fraught negotiations over the 1958 National Defense Education Act (NDEA). Lawmakers ended up offering small annual grants to graduate students and limited yearly loans to undergraduates, neither of which covered the full cost of going to college then. But Kennedy still disliked how much Congress was expecting Americans to borrow through that program in 1962. “They cannot be expected to borrow $4,000 for each talented son or daughter that deserves to go to college.”

But most Democrats and Republicans have embraced loans since they haggled over the 1965 Higher Education Act (HEA), which actually reified the racial inequities Biden described in his August 2022 press conference. On paper, it seemed to offer substantial, general (not targeted as with NDEA) support for colleges, universities, and campus libraries in order to keep costs down. The third section even offered additional assistance to “developing institutions,” a coded way to refer to HBCUs. Liberals fought for that provision because they correctly predicted that discrimination would persist in admissions and financial aid offices despite the recent passage of the 1964 Civil Rights Act. But a Democratically-controlled Congress and White House still prioritized tuition assistance, particularly the Guaranteed Student Loan Program. Johnson and other liberals did not share the New Dealers’ fears of these inherently risky financial products. Great Society liberals promised bankers repayment for the loans made as a way to jump-start a new financial industry in order to avoid substantial, direct government investment in campuses to keep costs down. They, in fact, took inspiration from the 1930s federal mortgage program even though loans for houses, which can be repossessed and sold to someone else, unlike course credits and degrees.

Federal student loan programs exacerbated longstanding inequities, just like experts have shown the federal mortgage program to have done. HEA and its subsequent reauthorizations did not tackle the underlying reasons why students and parents of color have to borrow more. White families generally had more wealth to commit to paying for college. Plus, campus admissions and financial-aid officers have determined who would receive what help since the first work-study program. Students of color ended up having to borrow more even after Congress created Pell Grants in 1972 to directly support students from low-income families, who then and now remain more likely to be Black and Brown. But Pell Grants were limited and often did not cover the full expense of enrolling in college even before state and federal support for college campuses dramatically declined during and after the 1970s. Over the past fifty years, real wages have also stagnated as health care, housing, and college costs have risen.

But Americans tended to blame themselves for not being able to pay for college until very recently. They have admitted the shame of not being able to afford fees since the Depression. That quiet suffering likely helped perpetuate the myths about higher education’s past affordability. But lawmakers could not ignore the reality of how unaffordable college had become during the Great Recession when Americans, particularly those in the Occupy Movement, began speaking out about their shared inability to pay the debts incurred for what other countries treat as basic rights. Outcry and activism coincided with Congress demanding far more information about student lending in 2008, which provided the evidence to show the structural inequities built into the country’s reliance on assisting students instead of directly funding campuses. It still took more than a year after Biden’s first presidential town hall for researchers, activists, and sympathetic lawmakers to change the Biden Administration’s mind on canceling student debt. Even though the White House will need lawmakers to change how higher education is funded, officials have at least acknowledged that the student debt crisis is much more complex than students enrolling in expensive private colleges instead of public options.