The Crisis of Student Debt
by, 05-02-12 at 06:10 PM (803 Views)
It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us; we were all going directly to Heaven, we were all going the other way. ~ Charles Dickens
We are in a time of crisis, a time of austerity, a time the where poor are getting poorer and the rich are getting richer at a faster pace than any other time in human history. We have gone from having a well-functioning economy to a real unemployment rate of 14.5% . During all of this, the situation has greatly affected college students, who are taking on massive debt just to further their education. With student debt now being over $1 trillion, an examination is underway of how we have gotten into this scenario and how we can get our way out of it.
The situation began in 1964 when Lyndon B. Johnson established a task force to examine the role of federal government in student aid, headed by John W. Gardener. The taskforce firmly believed that cost shouldn’t be a barrier in attaining a college education and to this end they concerned themselves with how lack of funds contributed to students being unable to attend college. Gardener
focused on a study which revealed that one out of six students who took the National Merit Scholarship test in high school did not attend college. Of the students who did not attend college and who had families who could contribute only $300 or less to their education, about 75 percent of the men and 55 percent of the women indicated that they would have attended college if they had had more money available.  (emphasis added)
Upon seeing this information, Johnson was shocked as he viewed the situation as a loss in human capital. This drove him to sign the the Higher Education Opportunity Act of 1965 into law. The bill included the recommendations put forth by the Gardener taskforce that the federal government should aid student in their journey to attain a higher education by providing loans, remedial classes, and grants to college-aspiring students as well as special programs and projects for low-income students who have an interest in attending college. This allowed for low-income and middle-class students who have an opportunity to go to college.
There was an uphill battle, though, as the American Bank Association was against the loan guarantee provision. The ABA was mainly concerned about possible government encroachment in their business, arguing that “the federal government could not replicate the working relationships that locally-owned financial institutions had with state and private non-profit guarantee programs” and “the federal government would end up taking over the industry because there would be little incentive for the state and private non-profit agencies to establish their own programs.”  To solve this problem, the Johnson administration met with the ABA and worked to “[assure] the bankers the loans would pay them back handsomely over time because they were investing in young people who would become their best customers in the future,”  as well as telling the banks that the government would be the ultimate loan guarantor if there was no one else available. Thus, with the banks placated, the bill could be passed.
The rest of the article can be read here
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