‘Indentured Students’

Elizabeth Tandy Shermer's Indentured Students: How Government-Guaranteed Loans Left Generations Drowning in College Debt (Harvard University Press) is a history of the student loan industry. Readers will have no doubts about Shermer's sympathies -- the book is dedicated to the "45 million of us, and counting, who together owe more than $1.7 trillion."

Shermer is an associate professor of history at Loyola University Chicago. And the book is a 301-page history of presidents and Congress trying -- and many times failing -- to deal with student debt. Shermer responded to questions via email.

Q: Were government-guaranteed student loans destined to create the mess we're in? Or could they have been managed in a way that would have led students to have modest debts only?

A: The student debt disaster could really only have been avoided if lawmakers had prioritized directly funding colleges and universities to end their historic reliance on tuition. After all, the guaranteed-loan program was intended to create a student loan industry. Lawmakers and policy makers were spending a lot on fighting a war in Vietnam while waging a War on Poverty to help build a Great Society at home. Expanding higher education was a part of those domestic efforts, but the Johnson White House, Office of Education and a majority of Congress thought it more cost-effective to create a loan program that guaranteed bankers would be repaid. That idea appealed to both liberal Democrats and Republicans in the 1960s. They thought promising bankers a return on mortgages had been the key to turning a country of renters into a nation of homeowners through the 1930s federal mortgage program. So they assumed that a similar guarantee on student loans could turn the country into a nation of college graduates, years before scholars showed how the mortgage program disproportionately benefited white men and their families.

But presidents', senators' and representatives' eagerness to double down on lending did a lot to create the mess we are in. Financiers actually fought the loan program in the mid-1960s and only reluctantly participated before the Nixon White House and a Democratically controlled Congress bolstered the student loan program when they reauthorized the 1965 Higher Education Act in 1972. That legislation is usually celebrated for creating the Pell Grant program and adding Title IX. Lawmakers, with the Nixon administration’s support, also included a new secondary market for student debt (Sallie Mae) modeled off of the one for mortgages (Fannie Mae) to make the buying, selling and profiting off student debt easier for bankers. Expanding the student loan industry and guaranteeing bankers repayment remained a priority in subsequent decades, when local, state and federal funding for higher education declined and fees increased.

Q: You write of Southern politicians and Roman Catholic colleges objecting to the idea of federal support for colleges (before the loans grew out of control). Why did they act as they did?

A: Many Southern politicians, like Alabama senator Lister Hill and Alabama representative Carl Elliott, were eager for federal higher education aid. These ardent segregationists just didn’t want that support to only go to desegregated colleges. A few liberal Democrats insisted that federal funds could not go to segregated colleges in the bills that they introduced after World War II. But Southern Democrats dug their heels in on that issue, especially as more African Americans bravely applied to segregated campuses across the South.

Faculty and administrators on Catholic campuses also supported federal funding, so long as it could be used at private institutions with religious affiliations. A lot of the congressional bills introduced after World War II excluded all private institutions from federal largess. Catholic professors and administrators complained that lawmakers were not recognizing how much their campuses served the public. They also openly feared that they would not be able to compete with public institutions for students. State and federal support would enable them to charge less for the college degrees that a growing number of Americans wanted.

Q: Lyndon Johnson is seen as the creator of many higher ed programs. Where did he go wrong?

A: Lyndon Johnson put a premium on the guaranteed student loan program. He even became involved in the high-level negotiations to get bankers to end their aggressive lobbying to stop its inclusion in the 1965 Higher Education Act. His eagerness stemmed from both personal experience and the political realities of the 1960s. This former New Dealer had actually borrowed to pay for his degree at a small Texas teachers’ college. Decades later he had a lot of faith in a program modeled off the 1930s federal mortgage program, which seemed to many aging liberals to have opened the door to homeownership to more Americans and revived the housing industry in the depths of the Depression. Johnson also liked that the graduate student loan program seemed cheaper than directly funding higher education to lessen its reliance on fees and tuition charges.

The Vietnam War, the War on Poverty and other components of the Great Society were expensive at a moment when conservatives were pushing liberals to curb taxes and spending. Even though Johnson handily defeated Republican Barry Goldwater in the 1964 election, Johnson still worried about the challenge conservatives posed. After all, a conservative Republican had won the special election to fill his Senate seat in 1961. The Guaranteed Student Loan Program appealed to Johnson because the way it was reported on the budget made it seem cheaper than it was. The only thing tracked was the interest paid while students studied, which made it easy to hide how much it cost to run the Guaranteed Student Loan Program until the 1990 Federal Credit Reform Act changed federal accounting practices.

Q: What was wrong with Bill Clinton's approach to providing tax breaks to support higher education?

A: Liberal Democrats and Republicans spent 40 years thwarting conservative efforts to pretend that tax cuts could ever support higher education. When conservative Republican Barry Goldwater insisted tax breaks alone could help parents afford tuition and incentivize higher education’s expansion, both liberal lawmakers and moderate Republicans in the Eisenhower administration feared such write-offs would only benefit those wealthy enough to itemize college fees on their returns. Lyndon Johnson and Jimmy Carter also fended off a growing number of Republicans and Democrats eager to offer tax breaks for parents instead of providing direct funding for campuses or even loans to students.

Critics also raised those concerns after Clinton included student loan write-offs in his 1996 campaign promises and 1997 tax reform proposals. They pointed out that fees were usually due in the fall, months before tax returns were due. They also correctly predicted that the revenue lost would further reduce how much federal and state governments would allocate for higher education. Less support meant that campuses would have to charge far more than Americans would be able to write off on their taxes.

Q: What should President Biden do now?

A: President Biden alone can’t end the student loan crisis. He should use an executive order to wipe out federally held student debt and direct his Education Department staff to explore how an executive order could be used to cancel the debts not covered under the student loan moratorium, which is set to expire Sept. 30.

But Congress also needs to pass legislation to support students as well campuses far more than the current infrastructure proposals being debated in Washington. Legislation, like the College for All Act, would overhaul the creative financing that threatens to shutter campuses and continues to price a growing number of Americans out of the college educations that benefit a country that needs, more than ever, well-educated citizens and residents for the health of the American economy and American democracy. Getting Congress to act requires the kind of grassroots organizing and campaigns that made student debt cancellation a major part of Bernie Sanders’s 2016 and 2020 presidential campaigns. But Americans don’t just need to elect leaders promising the kind of overhaul to cancel debts and stop parents and students from incurring them in the future.

Constituents have to keep pressuring their elected representatives to make good on their promises, either for a Green New Deal or to really build back better.