Why do 45 million Americans owe so much student debt? I asked Elizabeth Tandy Shermer that question as we walked around Stanford University in the early months of the pandemic (masked, of course). Congress had just passed what would be the first of several federal student loan moratoriums, and Shermer had just sent off a draft of Indentured Students while on leave at the Center for Advanced Study in the Behavioral Sciences.
But Elizabeth did not tell me the usual tale of for-profit colleges or greedy bankers on that spring day, or when we talked two years later for Public Books. Complicated tuition assistance programs were actually a way for policy makers to help manage the labor market during the Depression and after World War II. Democrats and Republicans then embraced student loans (instead of direct spending on campuses) during bitter fights over segregation, women’s equality, taxing, spending, and federal control. Lending seemed a cheap, politically palatable way to nudge campuses to offer equal opportunities for young women and students of color to enroll in the 1960s, when financiers fought the creation of a federal loan program that guaranteed them repayment on these incredibly risky financial products. That’s why Shermer considers the 1960s a Gilded (not Golden) Age for American higher education. Indentured Students’ account of a historical lack of investment in higher education gives us a lot to think about as we wait to see if there will be another extension of the repayment pause or even mass cancellation of the debts that have disproportionately burdened families of color and women borrowers.
Mitchell Stevens (MS): Your book Indentured Students is about how Americans came to rely so heavily on debt to finance higher education. It’s part of a wave of scholarship that recognizes the extent to which the US government uses debt as an instrument of social policy.
Why is debt a politically appealing mechanism for social policy? What are the advantages?
Elizabeth Tandy Shermer (ETS): From a policy-making perspective, it seems cheap. It also speaks to this idea that somehow a free ride to college is un-American.
Emphasizing this historical reliance on finance puts a different spin on the New Deal. Social Security, that’s a pension plan, right? Unemployment insurance is also a financial product that employees and employers pay into.
Indentured Students also emphasizes that a lot of the financial products that have structured American social welfare came with a government guarantee. But the government guarantee was not for citizens, it was for the bankers. The New Deal’s government-guaranteed mortgages, like student loans, were a promise that bankers would be repaid.
MS: In US political history, by the early 20th century there was a national consensus that everyone was owed a free elementary and secondary education. But higher education never achieved the status of right. There’s ambiguity about who deserves higher education and who’s responsible for paying for it.
ETS: There was talk in the late 1940s and early 1950s about the need for direct federal support for higher education to make this country more democratic. In fact, I’m really honored you and your colleague Emily Levine included me in your special 2022 issue of Change on the ambitious Truman era report on the need for, at the very least, providing a right to two years of college, tuition free.
But, by the time Congress passed the 1965 Higher Education Act, the focus was back to tuition assistance. In the early 1970s, Rhode Island senator Claiborne Pell kept talking about the right to education. He still presumed that the poorer students would have to borrow and work their way through school. His proposal didn’t fundamentally challenge the way that higher education had historically been funded. Pell Grants—named after him—were never going to be enough to cover the cost of tuition, even in the early 1970s.
Is College Worth It?
MS: Could you briefly recount the major pieces of federal legislation? In my view, Indentured Students provides a definitive account of the policies behind student debt.
ETS: Thank you. But that might be surprising to people, who expected a story of for-profit colleges and greedy bankers.
The book takes the origins of the student loan industry and crisis all the way back to the relatively short-lived work/study program of the 1930s. It did not directly give the money to the universities. Rather than free them from their dependence on tuition, New Dealers enabled campuses to offer this very complicated tuition assistance. Universities got to pick and assign jobs to eligible students, so that undergraduate and graduate students could receive salaries from the federal government to at least partly pay their way through college. Work/study really cemented this strategy of federal support via tuition assistance.
The GI Bill was, after all, tuition assistance too. The GI Bill was a story of colleges and universities getting the tuition payments for the veterans that they chose to admit.
MS: Whom they chose.
ETS: Exactly. We need to think about the many veterans excluded because of their sex, their race, their religion. And even those who actually got in were not getting payments on time to cover books and living expenses. Those “subsistence checks” from the Veterans Administration also didn’t go very far in a period of rapid inflation.
MS: So, am I to take from what you said that we are still living according to a higher education funding program that was developed in the 1930s and 1940s?
ETS: Pretty much. We seem to be stuck with the idea that what the federal government really should be doing—or the only thing it’s capable of doing due to political gridlock in Washington—is providing tuition assistance.
MS: The 1930s federal mortgage program was also important to your story. In the book you point out the differences between houses and college degrees as commodities. Could you fill that out for the Public Books audience here?
ETS: Oh, absolutely. So, let’s think about this. Within the federal mortgage program, if you default on your mortgage, your house will be repossessed and sold to someone else. You can’t do that with a college degree. My college degree, or even the course credits, cannot be sold to someone else.
MS: They can’t be expropriated from you.
ETS: Right, they can’t be expropriated. And, even if they could be, what that would do is strip me of the credentials to be able to compete for the well-paying work that would allow me to pay this loan back.
And, by the way, there is no down payment on a student loan. My ability to get this loan is predicated on an accredited college or university admitting me. So, let’s remember that they’re dependent on my tuition revenue. That’s why the New Dealers said no when college and university presidents came to them wanting a student loan program. Why? One of the things the Roosevelt administration was trying to do was clean up speculative, risky finance.
MS: So, there’s a huge difference between underwriting a fungible asset, like a house, and underwriting a nonfungible asset like a college degree. How is it that presumably reasonable people passed student loan legislation despite that fact? How did they pull that off?
ETS: More and more of American life was being run on credit after World War II. The federal mortgage program was also considered an incredible success. It took a country of renters and turned it into a nation of homeowners. Even though a house and a college degree are two completely different things, lawmakers used the mortgage program as a model. Sallie Mae was even openly modeled off of Fannie Mae for mortgages. Why? The mortgage program seemed like such a success, before the scholarship was done and circulated showing how it worsened racial, gender, and economic inequality.
The student loan program was created in such a way that also hid how expensive this program was for taxpayers until the early 1990s. That’s when the massive collapse of a student lender sparked investigations that revealed how much cheaper direct lending from the federal government would be than from private lenders.
MS: So, why did it take us so long to recognize the problems baked into the program from the very beginning?
ETS: It’s similar to the reason it took so long for scholars and journalists to recognize the inequities woven into the federal mortgage program: experts now have more data that they can easily parse and share in ways not possible for much of the 20th century.
For a long time, the Treasury was publishing statistics on debt—household debt and nonprofit debt together. It was also not until 2008, when the Higher Education Act was once again reauthorized, that a much more concerted effort was made to collect data on student lending. That’s why this crisis seems so recent: scholars have really only had that kind of data for a bit more than ten years. And, since then, they have shown how (as with the mortgage program) federal student loans worsened historic racial, gender, and class inequities.
Americans also blamed themselves for how hard it was to pay for everything. When I went digging in Claiborne Pell’s files, Lyndon Baines Johnson’s papers, and Edith Green’s records, all from leading senators, representatives, and presidents involved in higher education policy, the pain was there. Individual Americans thought they were the only ones who could not afford to send their kids to college. I was infuriated when I discovered the many liberal Democrats who ignored those pleas or chose only specific cases to get involved in. Even worse: the Nixon administration just labeling such letters grief mail. That’s what Nixon and his aides thought of the many people frustrated and ashamed that they could not afford what was becoming a requirement to be able to compete for rapidly disappearing good jobs.
MS: College became associated with self-fashioning and self-actualization, so the idea is that you’re going to make yourself or your child a better person in the process of sending them off to college.
ETS: Absolutely.
MS: Another thing that I feel like the academy needs to own up to is the legions of social scientists promising us that taking out debt to finance postsecondary education is “good debt.” The idea is that you are investing in yourself in ways that will enable you to earn substantially more money over the course of your life. That is true on the condition that you finish a degree, and that the degree is one that has some sort of exchange value in labor markets. But those end up being two very large ifs.
ETS: I do not shy away from showing the academy’s complicity in this crisis. But I also think we need to keep in mind that campuses have been asked to do more with less. It can’t be emphasized enough that K–12 schools and college campuses are on the front lines of public disinvestment.
MS: The year 2010 proved pivotal in the history of student loan policy. That’s when the Obama administration brought responsibility for extending and managing student loans back into the federal government from the private sector. How was the administration able to pull that off?
ETS: That’s one hell of a story. It was helpful that the Obamas talked about having only recently paid off their debt. They actually brought it up on the campaign trail.
But public memory is really focused on the question of health care in the 2008 campaign, when (in fact) there was an array of issues, including higher education and the ongoing wars in Iraq and Afghanistan. Obama administration officials knew that it might be possible to replace the old Guaranteed Student Loan Program with a direct lending program that had been running for more than a decade at that point, but did they have the votes in Congress, especially after Senator Ted Kennedy died?
There was an attempt to pass separate legislation. But, as with pushing the Affordable Care Act through, getting rid of the original loan program was a hard-fought, narrow victory because 60 votes are needed in the Senate for anything to be done unless you want to try to get something through with budget reconciliation. Many people overlook that the 2010 budget reconciliation legislation was actually called the Health Care and Education Reconciliation Act. President Obama signed it at a Northern Virginia Community College—where then vice president Joe Biden’s wife, Jill, was teaching. She was there when Obama celebrated that his signature was basically killing two birds with one stone.
But, to me, it is tragic that this country just keeps going from budget reconciliation to budget reconciliation. That’s really what a lot of the story of my book is. Indentured Students tells a story of policies and choices that came out of historical dysfunction in Washington, which has left millions drowning in debt for basic needs. The American people deserve better.
I also want to give credit to the Occupy movement. It was in those encampments where people were sharing their stories of debt. It became clear that student debt was not just a private pain, not something that just you alone were experiencing. Those stories helped build a movement. It had some really powerful consequences for the University of California system. Students, faculty, and staff collaborated to reverse things that Governor Arnold Schwarzenegger had done and to put pressure on Governor Jerry Brown when he took office. Occupy also helped push student debt relief and reforming higher education funding from the fringes of the Democratic Party to a major issue in the 2020 election.
We need to credit ordinary, everyday people for continuing to push for this.
MS: Now that we have a much better understanding of how we got into this student loan crisis, what do we do?
ETS: If I could only have one thing in the entire world, I would like real democratic reforms to empower the citizenry to hold their elected officials accountable. Because we have had public outcry and demand for affordable higher education options since the GI Bill.
If I can’t have that, I’m in favor of debt cancellation.
My only fear with cancellation is that it won’t come with or will stop fundamental changes to how higher education is funded. If that happens, mass cancellation will just help previous borrowers, not future generations of college students.
More systematic change is needed because the old way of financing higher education doesn’t leave colleges and universities fiscally sound. There are predictions that anywhere from 30 to 50 percent of American colleges and universities might close by the end of this decade.
MS: Where do we get the new business model?
ETS: There are some interesting things at the federal and state levels. If you look at the Build Back Better bill, it was originally going to make community college free. More than 20 states have some version of free community college. There is also more attention on New Mexico’s experiment with making public campuses, including the four-year ones, tuition free.
But there is such dysfunction in politics and policy making that it’s hard to free up the political imagination for something different right now. And that’s unfortunate.
But there’s a role for everyone to play for something better. I hope that I helped, as a historian, to trace the roots of this crisis back to a guarantee for bankers to be repaid, not that campuses would get much-needed revenue or that students would have genuinely equitable opportunities to enroll. But we need more experts, like economists, to show how much it would save to actually have direct investment in colleges and universities instead of this reliance on tuition. Activists have been and will continue to be important in showing that a higher education overhaul is something the American people want and will take to the streets for and will turn out on Election Day for. It really is going to be a concerted effort to do that, and that’s actually what made the GI Bill a success.
MS: Amen.
This article was commissioned by Caitlin Zaloom. 
