The historic formation of student debt policies
Students and young adults are chanting “Cancel Student Debt” in the streets, news reporters and politicians have heated debates on television about its feasibility, and the current US president Joe Biden is on a long and arduous path to meet the protesters halfway via the Supreme Court. How has it come to this point? And what has government policy to do with it?
This blog will dig deeper into the topic of student loan policies to show why people are currently protesting and demanding loan reductions in the US, by answering the question: how has the US government played a key role in making students more reliant on debt in order to pursue an education? This question will be answered by first looking into the historic formation of tying higher education to student debt via government policies and its particular detrimental effect on marginalized communities. Second, an interview with a 31-year-old Latin-American woman, whom we will call Ariana, will showcase how quickly students accumulate debt and how difficult if not impossible it is to pay it back as a member of a marginalized community.
Ultimately, then, it will become clear how the current reality of student debt in the United States is in fact a policy choice, rather than a natural and inevitable result of market forces.
Historic Developments of US Student Loan Policies
In order to understand why the US education system is upheld by individual debt instead of public funding, we have to look back in time and trace the developments of a handful of crucial government policies. In the mid-1930s, the New Deal expanded and solidified, among other things, a public university system, based on the belief that an educated nation maintains prosperity and boosts economic growth. Yet, higher education was not accessible to everyone, which is why civil rights and women’s rights movements in the 60s pushed for more inclusion. These struggles culminated in the Higher Education Act of 1965 which aimed at achieving equal access to universities by establishing non-discriminatory loans to anyone wanting to pursue a higher education.
More and more people started to access education, yet the economic crisis in the 70s suddenly left the government in a predicament of having to deal with citizens’ demands for expanding welfare services, next to high inflation-, unemployment- and interest rates, as well as slow economic growth. Around that time, public policy started to promote access to credit as a “quick” solution to the rising demands of citizens, next to limited state budgets.
During this time, economic policies started to increasingly focus on deregulating financial markets and creating new ways for creditors to profit from student loans (ultimately making it into a trillion-dollar industry) as well as expanding access to consumer credit such as student loans. This expansion of the student credit system went hand in hand with significant cuts to the social safety net, student grants, and funding for public universities. Moreover, while support was extended to private for-profit universities and the business sector through increased funding as well as tax cuts, student loan policies became more punitive and disciplinary by for example making it harder for people to declare bankruptcy (Reforms to the Higher Education Act and Bankruptcy Act in 1976 and 1978 respectively, also well as further Amendments in the 90s and 2010s).
The interplay of these policies with increasingly stagnating wages, and rising costs of housing, education, and healthcare has made student debt a necessity, rather than a choice. Ultimately, these policy developments have resulted in an education system that is primarily based on student debt, rather than public support.
Debt and Discrimination
It is crucial to mention at this point that the shift towards debt-based education has had a disproportionally negative effect on already marginalized communities in the US. Marginalized communities in the United States are less likely to have intergenerational wealth to support their higher education, financial literacy to navigate student loan providers, have to pay higher interest rates, are less likely to get a high-paying job after graduation (due to structural inequality) and unsurprisingly then make up the vast majority of students who default on their student loans. This means that student loans have become a perverse opportunity for formerly excluded populations to access higher education, only to be made worse off financially, while creditors and financial markets benefit. In effect, debt is a structural issue that targets the most historically vulnerable, exploited, and marginalized communities.
Ariana’s experience with higher education in the US as a Latin-American student illuminates these points that have been raised. Her lived experience showcases the normalization of student loans in US higher education, the particular case of first-generation students from marginalized communities, and ultimately the insurmountable difficulties of trying to pay back these loans after graduating.
In her interview, she recalls how the last year of high school was dedicated to entering the race for a spot in a high-ranking university, where student loans were treated as merely an afterthought. After everyone had received the highly awaited and dreaded thick letters of acceptance or thin letters of rejection, a whole week was dedicated to showing prospective university students how to take out student loans. Furthermore, she explained how when she entered university, loans easily piled on top of each other, since a simple thing as failing a course and having to retake it can mean needing to take out another loan. This is facilitated by a loan application process that can take less than 10 minutes on your phone. Moreover, she asserts that when she had exhausted her capacity to take out loans, her mother took out another one in her name, a process that is called Parent Plus Loans and a common reality for many students.
She recalls how everyone like her, who went to college during the Obama administration, had high hopes for the future and believed that they would be able to secure a good job after college, pay back their loans, and save for a home, kids, and family. However, she describes a rude awakening after graduating from college and being confronted with a precarious labor market as well as employment discrimination, thereby ultimately making it impossible to find adequate employment to pay back her loans. Moreover, after graduating she added up the student loans she had needed to graduate (for expenses that were not covered by a grand she received as a minority student from a financially insecure background) and was struck by the big number they amounted to. In this regard, she asserts: “You don’t know how much debt you are accumulating because it is extremely easy to apply for loans”.
After much research and reflection on how to pay back her loans, she decided to apply for the Public Service Loan Forgiveness Program (PSLF). This is a program established in 2007 as one of the view ways to file for a partial loan cancelation. In order to qualify, applicants need to meet the following requirements:
- being employed by a U.S. federal, state, local, or tribal government or qualifying not-for-profit organization (federal service includes U.S. military service);
- working full-time;
- having Direct Loans (or consolidate other federal student loans into a Direct Loan);
- repaying your loans under an income-driven repayment plan or a 10-year Standard Repayment Plan;
- making a total of 120 qualifying monthly payments.
While this might give people some hope on paper, Ariana highlights how difficult it is to actually fulfill these requirements. Specifically, given that, which organizations are counted as not-for-profit organizations under this particular policy is highly fluctuating and not knowable in advance. In her case, for example, she was recently informed that from her 8 years of public service work, only one year has been counted towards her PSLF application. Even though she put a lot of effort into establishing which not-for-profit organizations are most likely to count towards her debt cancelation.
Ultimately, she had to re-orient her whole life around her student debt, by for example working mainly for NGOs and not pursuing higher-paying jobs because of it, moving to three different countries, and practically putting her life on hold until she had dealt with her student debt. With a sigh of frustration, she uttered: “I am 32, and I don’t have a family, kids, or a home because of my student loans. I am engaged, but I don’t want to marry until I have figured out what to do with my loans because I don’t want to burden my partner with it.”
Ariana is not alone in her grievances and deep feelings of betrayal. In fact, in the past decade, an increasingly potent and politically active anti-debt movement has formed in the United States, demanding the cancelation of unjust and crippling student loans. While an initial attempt of President Joe Biden to partially meet these demands has been blocked by the Supreme Court, he is now preparing to restart the long legal process, this time basing his arguments on the Higher Education Act of 1965, with its declaration on the right to accessible education for all.
In conclusion, by looking into US government policies in connection to student loans, it has become clear that the government has played a key role in the fact that the current education system is sustained through student debt rather than public funding. Moreover, it has been shown that the student loan industry has become highly profitable for some, while increasingly burdensome for others, thereby further entrenching historic structures of exploitation, marginalization, and discrimination. In response to these dire realities of student debt, a growing anti-debt movement has gained ground and ignited a public debate around student loan forgiveness that has now even reached the Supreme Court. Whether this will lead to policies that challenge a debt-driven education system or further strengthen it, remains to be seen.
by Anna H. and Margherita Pianigiani
References
Al Jazeera English. (2023). Biden vows to fight after top US court blocks student debt relief. Www.youtube.com. https://www.youtube.com/watch?v=cSgoXhH4aGg
Ariana. (2023). Personal Experience with the Student Loan System in the United States (Anna H. & Margherita P. Interviewers) [Personal communication].
Debt Collective. (2020). Can’t pay, won’t pay: the case for economic disobedience and debt abolition. Haymarket Books.
Elliott, W., & Lewis, M. (2015). Student Debt Effects on Financial Well-Being: Research and Policy Implications. Journal of Economic Surveys, 29(4), 614–636. https://doi.org/10.1111/joes.12124
Federal Student Aid. (2022). The Biden-Harris Administration’s Student Debt Relief Plan Explained. Studentaid.gov. https://studentaid.gov/debt-relief-announcement
Soederberg, S. (2014). Debtfare states and the poverty industry: money, discipline and the surplus population. Routledge.
The White House. (2023, October 4). President Biden Announces an Additional $9 Billion in Student Debt Relief for 125,000 Americans. The White House. https://www.whitehouse.gov/briefing-room/statements-releases/2023/10/04/president-biden-announces-an-additional-9-billion-in-student-debt-relief-for-125000-americans
Zaloom, C. M. (2021). Indebted No More Paying for College Should Be Our Collective Responsibility. American Educator.