Everyone has heard about student loans, particularly the current student loan debt crisis, but few people understand the history of student loans or how the current crisis has come about. Two hundred years ago, the U.S. had no student loan programs, either public or private. If a student wanted to borrow money to attend a university, they were likely to borrow it from friends or relatives, or take out a standard bank loan.
Over time, as more specialized loans appeared on the market, loans earmarked specifically for tuition and other educational expenses were offered. At first, student loans were only offered by private institutions. Over time, the federal government stepped in to offer and regulate student loan debt.
When did Student Loans Start in the United States
The first student loans were offered to students attending Harvard University in the mid-1800s. This loan program was offered directly by the university about a quarter century before the U.S. Department of Education even existed. It was more than a hundred years before federal student loans would first be offered under the National Defense Education Act (NDEA) in 1958. After Harvard broke new ground with their innovative student loan program, other colleges would follow suit with programs of their own. Eventually, the U.S. federal government would begin offering loans, first to veterans and eventually to all citizens.
When Did the Federal Government First Offer Student Loans?
In 1944, the GI Bill was passed, allowing veterans to attend college for free or cheap. This drastically increased the number of veterans obtaining degrees in higher education, and it boosted enrollment at universities across the country. Prior to this, the U.S. government had never taken action to either subsidize higher education or make it more accessible to those who could not afford it. Then, in 1958, the first federal student loans were offered under the NDEA. This legislation was enacted in response to concerns about students from other countries, most notably the Soviet Union, bypassing the educational achievements of the U.S.
There has been a great deal of student loan-specific legislation over the past eighty years. In the beginning, federal involvement in student loans utilized private lending institutions as middlemen with the federal government guaranteeing any loans that went into default. However, this practice changed drastically in 2009 with the passing of the Student Aid and Fiscal Responsibility Act. This legislation, which went into effect in 2010, expanded federal involvement in student loans. Now, instead of utilizing private institutions to provide students with loans, the Direct Loan Program was created to allow the federal government to lend directly to students. Most citizens attending or wishing to attend higher education in the U.S. qualify to take out loans through this program. As a result of this change, many private institutions began to offer private student loans that were in no way connected to the government.
How did Student Loans Become Such an Issue?
There is no denying that the U.S. is in trouble when it comes to student loan debt. In 1986, students and their parents took out student loans to the tune of nearly $10 billion. At the time, this was considered to be an incredible expansion of student loan accessibility. However, fast forward to 2017 and the total student loan debt in the U.S. is a staggering sum of over $1.4 trillion. Many experts have opined on the reason for this drastic increase.