Rise of Student Loan Debt

The Rise of Student Loan Debt and Public Policy
 Up until 1965, National Defense Student Loans (NDSL) were the only form of aid available from the federal government to all college students. NSDL were developed to put a greatest emphasis on education in aftermath of World War II to make the US more competitive globally, even though there were previously reservations about government involvement in education. The NSDL loan program was the first federal loans program and awarded loans to campuses to be awarded to students in need and primarily studying science, teaching, mathematics, and foreign languages. Interest from students and colleges were often underestimated, causing requested funds to exceed those appropriated by the government. These loans had a low interest rate of 3% and were to be repaid over long periods.

One of the most successful policy initiatives in the field of higher education was the Higher Education Act (HEA) of 1965. This act helped millions of Americans pursue post-secondary education, increasing enrollment from less than 6 million in the 1960s to 15 million in the 1990s. The act was a result of educational initiative by President Lydon B. Johnson and congress in an effort to eliminate poverty and discrimination within the United States. HEA included two approaches to federal aid: aid to needy students and aid to institutions and states. HEA demonstrated a shift in policy from a small program in the 1960s to an almost equal emphasis on grants and loans in the 1970s. During this time, the NSDL was renewed, the College Work Study (CWS) program was finalized and the Guaranteed Student Loan (GSL) and the Educational Opportunity Grants (EOG) programs were established. GSL provided access to funds by private lenders for students to borrow. EOG focuses on students with extreme financial need.

The 1970s consisted of policy refinement for educational aid and loans. During this time, there was a shift in focus of money being allotted to the person rather than the institution, as demonstrated by a new loan program called Basic Educational Opportunity Grants (BEOG). As a result of this shift, loans were viewed as supplemental to aid packages, rather than being a core element. Refinement was illustrated by the creation of the Student Loan Marketing Association (Sallie Mae) in 1972. Sallie Mae is a government sponsored private corporation established to encourage banks to participate in the program by buying loans and allowing existing student loans to be pledged as collateral for new loans. In addition, need analysis was added to the GSL loan program, raising the income requirement for students. Due to the reforms, there were increases in state loan agencies and participation by financial organizations.

Growing demographic, economic and political tensions in higher education led to another shift in policy in the late 1970s. In 1978, the Middle Income Student Assistance Act (MISAA) was passed which established that federal support was needed by any student with college expenses. MISAA removed the income ceiling and led to an increase in interest rates in the general economy, interest rates as high as 19.5%. By 1980, there was uncontrolled growth of loans and yearly program disbursements began to regularly exceed what was budgeted.

From 1980 to the present, policy has shifted from regulating aid and loans in higher education. In the 1980s, there were disagreements over aid and loans continued to grow. Loans exceeded grants, both in number and amount, and defaults on loans also rose. The increases in tuition is closely linked to the expansion of loans from the 1980s to the present. The emphasis on loans has created a greater financial burden on students and their families.

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