Throughline - Student Loans: The Fund-Eating Dragon (2022)

Episode Date: April 6, 2023

At the start of the 20th century, only the most privileged could afford to go to college. Today, millions of students pursue higher ed — and owe $1.7 trillion in debt.Would you believe us if we said it started with Sputnik? This week on Throughline, we explore the origins of federal student loans, the promises the government made, and how an idealistic vision transformed into what some have called a monster.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Support for this podcast and the following message come from Autograph Collection Hotels, with over 300 independent hotels around the world, each exactly like nothing else. Autograph Collection is part of the Marriott Bonvoy portfolio of hotel brands. Find the unforgettable at AutographCollection.com. In the decade after World War II, the United States emerged as a world superpower. It was the Cold War, and the U.S. was at the top of the game, a world leader in production, innovation, and technology. And then everything changes on a Friday evening in October of 1957. And that's when Lyndon Johnson, who is the Senate majority leader at the time, is hosting a barbecue at his ranch in Austin, and a news item comes across the radio.

Until two days ago, that sound had never been heard on this earth. Suddenly, it has become as much a part of 20th century life as the whir of your vacuum cleaner. That says the Soviet Union has made it to space. They have launched a satellite, the first man-made satellite, into space. It's a report from man's farthest frontier, radio signal transmitted by the Soviet Sputnik, the first man-made satellite as it passed over New York earlier today. Immediately, he and Lady Bird Johnson and their guests walk a path to the nearby river to find a spot where they can look up at the sky

and see if they could see this object. The sky was like velvet and the stars hung close like brilliant diamonds around us. Each of us was pondering what the future now held and lyndon johnson basically for all intents and purposes looks up at the sky and says oh no we had lived with the sky all our lives and suddenly it was as though we had never seen it before he then races back to the house and calls fellow members of the committee that he served on and basically says, this is a huge event. We have to have some type of response to this. He wrote that he was really stunned and he wanted to reclaim that space race and that in order to do that we needed a more educated workforce we needed more scientists and engineers very quickly within

within weeks or months you know he realized that this issue of the country being humbled and being beaten to space was as much an education issue as it was anything else. An education issue which today has become a financial issue. No issue will have a bigger impact on the future performance of our economy than education. 43 million borrowers have about $1.5 trillion in federal student loan debt. As a society, we don't really understand the true impact that this debt is having.

It's a necessity for most people who want to earn decent wages. It is a literal ladder into the middle class. We're starting to see how student debt is driving income inequality, racial inequality. The rule has been, it's only been for a few, and it was never enough. For that reason, I'm directing the Department of Education and the Department of the Treasury to publish detailed information on future earnings and loan repayment rates for every

major and every program at every single school. 12% of the population has student debt. The other 88% have to pay for them. That's why I propose to immediately provide $10,000 in debt relief as stimulus right now. The legal fight over President Biden's student loan relief program has put a lot of borrowers in limbo. And now the Supreme Court is going to have its say. College student loan debt has become a hotly debated political issue in the United States. Most polling shows support for student debt forgiveness among Americans is more or less split.

Some people claim reducing the burden of the debt is the right thing to do and will help the economy. Others say it will essentially be a bailout for those privileged enough to go to college. You have to go back to that October night in 1957 when the Soviet Union outclassed the U.S. in the space race to understand how this whole issue got kicked off. Because then-Senator Lyndon Johnson wasn't the only one looking at the night sky and growing concerned. That moment triggered a recognition by the American political class that to defeat the USSR and to maintain American dominance, the U.S. needed skilled workers. And that urgency began a series of efforts over the next few decades to make college accessible and affordable. Each of those efforts, although probably well-intentioned,

created a maze of bureaucracy that ties together the government and the banking industry, universities and everyday citizens into a system that has shackled millions with lifelong debt. In this episode of ThruLine from NPR, we're going to explore the origins of the federal student loan program to understand how the maze was built and what might be done to get out of it. I'm Vicky Diaz-Gamacho from El Paso, Texas, currently based in Kansas City, and you're listening to ThruLine from NPR. I transferred from one state university to another and had to pay out-of-state tuition, which left me with $75,000 in student debt.

I don't even make that a year. So yeah, student debt sucks. with no hidden fees. Download the WISE app today or visit wise.com. T's and C's apply. Part 1. After the October Sky. Four million people have lined the sidewalks to see G.I. Joe on parade, to see victory marching down the street to become history. In 1945, World War II ended. The U.S. and its allies had pushed Germany and Japan to the brink.

And the millions of American soldiers who'd survived the wars in Europe, Africa, and Asia were coming home. This is the jump off. This is Operation Homecoming, the last official mission of the all-American 82nd Airborne Division. Their objective, the four and a half mile parade route through New York City. But something haunted their return. Memories of what awaited veterans of the previous World War, World War I. For these returning soldiers, no legislation had been passed, nor any program mapped out to give them the break they deserved.

They got medals. But 15 years later, some of these men were selling apples on street corners. People at the time were afraid of a depression like the one that followed World War I. Because in Washington, there were a group of congressmen with long memories who were in the last war. They knew that when a man gets out of the Army or Navy or Marines, he's worried most about a job, an education, and a home. So they want to send them to college. This is Elizabeth Tandy Shermer. I'm an associate professor of history at Loyola University Chicago.

And she wrote the book, Indentured Students, How Government-Guaranteed Loans Left Generations Drowning in College Debt. According to Elizabeth, the president, Franklin Delano Roosevelt's administration and Congress were worried that these veterans would come back and compete for the same jobs as civilians. They thought sending them to college would be a good way to get them out of the labor market. And that is one of their ways of thinking about how we're going to transition to a peacetime economy. And the benefit will be that these veterans will get the training that they need to not only improve their individual chances on the labor market, but to improve the overall quality of the American

workforce. And that's why Congress, led by the president, passed the law, the Servicemen's Readjustment Act of 1944, better known as the GI Bill of Rights. The GI Bill, as it came to be known, provided funds to veterans for unemployment insurance, housing, and most importantly for our story, education. This money came in the form of vouchers that eligible veterans could apply for and use towards their college tuition. They were like grants. It was a game changer. Never before had the government gotten this invested in higher education. And this was also a big deal because the very idea of going to college was new. It's hard to imagine now, but at the start of the 20th century, in the early 1900s,

very few people had graduated high school, let alone college. This is Josh Mitchell. I am a reporter at the Wall Street Journal. And he wrote a book called... The Debt Trap, How Student Loans Became a National Catastrophe. At the start of the 20th century, less than 3% of the population had a college degree. College really was back then only available to the privileged few. College would have cost a lot of money for the average American family. And honestly,

it wouldn't have been worth it because most jobs at the time didn't require a college degree, even white-collar jobs. You didn't even a college degree, even white-collar jobs. You didn't even need a degree, you just needed a few courses to have that good white-collar work, which was not as dangerous as the factory floor or, to be honest, actually working out in the farms. And it wasn't like colleges were out recruiting all students either. They were, for the most part, very exclusive. A lot of our oldest colleges and universities in this country, they didn't want to welcome the working classes. They didn't want to welcome immigrants, people of color, women.

So when the GI Bill went into effect in the 1940s, suddenly millions of servicemen and women, some of whom were people of color or working class, had access to something that had long been reserved for the elite. Very quickly, college enrollment doubled within a couple years. The GI Bill of Rights is not a reward or a handout or a gravy train, but rather an American way to make it easier for each man to take his place once again in the community and get some of those things for which he went to war. A job, a business, an education, a home. This became like very quickly intertwined with the American dream, which was itself a phrase that entered the popular lexicon around that era.

You know, all of a sudden, in addition to homeownership, you had college that suddenly became like a reasonable expectation of the middle class. Over two million veterans went to college using the GI Bill. But we have to be clear here. There were millions more who served who didn't get that same chance. A lot of people were excluded from this benefit. Not just the war production workers who were actually on the lines, you know, those rosy riveters, all those. But also sectors of the military that women served were excluded.

If you were dishonorably discharged for being gay or lesbian, you're also not going to be able to get your GI Bill. Disabled veterans, veterans who are hurt, also had a hard time using this because it all depended on the college and university accepting you. And there is absolutely nothing in this legislation to make segregated schools in the South accept African-American veterans. A lot of schools were operating on the quota system, which means they were pretty much openly discriminating against women, Jews, Catholics, immigrants, and Black students. College universities practicing the quota system are not ashamed of this. And that is when we have the first public outcry against the quota system.

A New York Post columnist even chastised schools for deciding to, quote, judge their applicants for admission on the principles of Hitler's racist state. Even though the GI Bill was flawed and left a lot of people out, it was ultimately a really big deal because it changed the government's role in higher education.

I think that that was really the event that opened the floodgates for getting Washington, D.C. involved, for getting the federal government involved in helping middle class and poor families pay for college. Okay, at this point, you might be asking, if the federal government is spending all this money to give veterans vouchers to pay for college, why didn't they just invest money in making college free for everyone? Well, some politicians did propose ideas that came close to that,

but they were met with intense opposition. There were Democrats who essentially wanted a civilian GI Bill. But every time someone thought about putting together a package, they were accused of being socialists. And that was a really effective accusation from a political standpoint. Throughout the 50s is the question of, will this support go to segregated institutions? Will it go to religious colleges and universities? Will this support go to private schools? Will it only be for public schools? And this is the stuff, particularly the question of segregation in the South, that kills these bills throughout the 1950s. It was the start of the Cold War, and the country was still segregated. Jim Crow was still happening in the South. So the idea that the GI Bill would

expand, or that college would become universally free, was just seen as un-American or antagonistic towards the South. It just wasn't going to happen. You had Democrats who had been arguing for more financial aid of some sort to help people go to college. And you had Republicans say, don't listen to those socialists over there. Big government is simply creeping socialism, and that's not what the United States is about. Which brings us back to the river in Texas in 1957, where Lyndon Johnson, the Senate majority leader at the time, and the second most powerful man in Washington, is looking up at the sky and thinking about Sputnik. Within several months, there were like all of these news stories that the news media was running

on the front page. And a lot of the stories had to do with the advances of scientists and engineers in the Soviet Union, that they had been focusing like a laser on STEM education, science and technology and engineering. About a month later, the Soviet Union launched Sputnik 2. They launched a bigger man-made satellite this time. And this was like a double blow. I mean, you know, it was just like shocking again.

But some Democrats, like Lyndon Johnson, also saw this as an opportunity to expand government support for higher education. They thought... We finally have a political opening here to pass an education bill that we haven't been able to do for years. If we put together a national defense bill, Republicans will be forced to vote for it because the country is freaking out right now. And 11 months after the first Sputnik, Congress passed the National Defense Education Act. But it wasn't exactly what the Democrats wanted. At the very last minute, over this long-term fear that Americans would get a free ride, which so many legislators thought was un-American, they changed a small grant program for undergraduates to the first loan program.

The idea being that, you know, look, this is not a handout. This is not the federal government giving people stuff for free. This is not a socialist system. This is actually a loan that's going to cause, you know, the nation's young people to learn what it is like to be responsible and to pick yourself up by the bootstraps and to work for your education. This is the American way. So the National Defense Education Act created the country's first federal student loan program. But this wasn't a program designed to battle inequality. It wasn't there to provide opportunities for marginalized people. It was targeted basically just for high-achieving, generally white male high school students. Students who wanted to go into math, science,

and foreign language. Things that could help the country's national defense. And as you can imagine, this created more issues. Basically, the government would approve a certain amount of money, which then they would give to the colleges themselves. And the colleges got to decide who got the loans. So there was a lot of discretion on the school's part about who received these loans. And so this program, when you look at who it was really designed to help, from a rhetorical perspective, the discussion focused on these high achieving, high GPA students, not necessarily people who were, you know, in the lower economic rungs, including minorities, including the poor. There's problems from the very first experiment from the get-go. People

in the Office of Education tried to show that that loan program didn't work. It didn't work. But soon, Lyndon Johnson, a man dedicated to fighting inequality, went from looking up at the sky in Texas to sitting in the Oval Office. Coming up, he pushes a new idea that would make higher education available to everyone and in the process creates what some have called a monster. I'm Sam from Brooklyn, New York, and you're listening to ThruLine from NPR. I was lucky enough to have my parents pay for my undergrad, but I have $200,000 in student loan debt from law school. My first job out of law school in New York City paid $200,000 in student loan debt from law school. My first job out of law school in New York City paid $58,000. Whenever I hear politicians say lawyers and doctors don't need relief,

I go crazy. We're struggling too, and I don't think I'll ever be able to climb out of this. Support for this podcast and the following message come from the NPR Wine Club, which has generated over $1.75 million to support NPR programming. Whether buying a few bottles or joining the club, you can learn more at nprwineclub.org slash podcast. Must be 21 or older to purchase. Part 2. The Fund-Eating Dragon. Each year, more than 100,000 high school graduates with proved ability do not enter college because they cannot afford it. This is President Lyndon Johnson giving a speech at the University of Michigan in 1964. Poverty must not be a bar to learning, and learning must offer an escape from poverty. Johnson became obsessed with higher education on that October night in 1957

when he looked to the sky for the newly launched Soviet satellite Sputnik and realized the U.S. needed a more educated workforce. He made it a central part of his agenda throughout his political career. And in 1963, when he inherited the presidency after the assassination of President John F. Kennedy, he finally had a chance to make his education agenda happen. Will you join in the battle to build the great society, to prove that our material progress is only the foundation on which we will build a richer life of mind and spirit.

Lyndon Johnson, I think, is such a complicated person because he's a Southern Democrat, but he's a liberal Southern Democrat. And he actually gets his degree from a small teacher's college, which is the only thing that's actually open to him. Johnson grew up in Central Texas. When he was just a child, his family abandoned their farm and moved to a nearby town where they lived in poverty.

The home Lyndon Johnson grew up in had no running water or electricity. So going to college was a path to getting a well-paying job. It was a big deal for him. But he couldn't afford it. So he ended up having to go to a bank to ask for a loan. In the end, he borrowed $220, so he ended up having to go to a bank to ask for a loan. In the end, he borrowed $220, close to $4,000 today. He was one of the lucky few who actually got a loan from a bank to go to college at that point.

And he always felt very fondly of his ability to get a loan and then to work and pay it off. As a man who was basically living without a bathroom, kind of on the sly, and sort of going to a gymnasium to shower and doing anything he could possibly do to pay for college, he had this real sense about how unaffordable college was and how much an education actually meant. He just always felt that education was such an important part of moving up in society. Johnson graduated from college in 1930 and worked as a teacher in Texas. Eventually, he landed a job in a congressional office and began a successful political career. For him, a college education was a pathway out of poverty and into a better life. And because he had such a positive experience with the student loan,

he just felt like everyone else should have that opportunity. Will you join in the battle to give every citizen an escape from the crushing weight of poverty? When Lyndon Johnson became president in 1963, he set out to expand the government's role in higher education. He wanted to make sure all people, regardless of their economic class, race, or gender, would have the chance to attend college like he did. This fit right into his broader legislative agenda

to fight poverty and inequality, what he called the Great Society. So in 1965, he pushed Congress to pass the Higher Education Act. The Higher Education Act. Which instead of the National Defense Education Act giving money to schools, this was kind of like the GI Bill where students got a voucher, but instead of it being a scholarship that did not have to be repaid, these were loans. Loans. Student loans. The idea Johnson was pitching was that the Higher Education Act would mix student loans with grants to provide more people with'd be repaid, then the cost of this program would quickly get out of control.

So if the Johnson administration wanted to make higher education universally accessible, they had to find another way to fund it. Lyndon Johnson said, aha, I have an idea. We can help students get loans without it being on the federal government's books. Let's just somehow persuade banks to make loans to students. Maybe this plan would convince opponents in Congress, but the banks were definitely not on board. This is because at the time, the conventional wisdom was that student loans were risky.

Because you didn't quite know, you know, which students would end up staying for four years. You didn't know what field they were going to go into. Were they going to be a doctor? Were they going to be something else that didn't pay nearly as much? And so, you know, there was just a lot of uncertainty that banks were really reluctant to get involved in this. They were afraid of federal overreach and they fought it. Johnson himself actually got involved in the negotiations with the leaders of the American Bankers Association to stop their opposition. Johnson was known as a very persuasive dealmaker.

But his patriotic pitch was not enough. Johnson had to offer the banks something more, something tangible. To convince banks to do this, they came up with what was called the Guaranteed Loan Program. The government basically co-signed. The government played the role of co-signer and basically said, if you give this student a loan and that student fails to repay, ultimately we will make you whole. So guess what? You're not taking on that much risk because ultimately the government's going to step in and pay you back.

This was a deal the banks couldn't really refuse. It meant that they would get a steady stream of business and it would be backed by the U.S. government. So if a student couldn't pay refuse. It meant that they would get a steady stream of business and it would be backed by the U.S. government. So if a student couldn't pay back a loan, no problem. The U.S. government would make sure the banks didn't lose out on the loans or the interest they would make. A pretty sweet deal that Johnson had to offer in order to get the banks on board. And so banks started to make loans under this program. But there was another problem.

College costs had gone up 90 percent since 1950. And four years of college averaged about $7,000 a year at the time. That seems cheap. I know it seems cheap. But American families made less than $5,600 when college costs on average are $7,000 a year. And that's the key thing. I know it seems cheap, but it really wasn't at the time. And remember, these loans were guaranteed by government dollars, taxpayer dollars. Josh Mitchell says the Johnson administration assumed that the program wouldn't cost taxpayers anything because everyone would repay their loans. These students are going to go to college. They're going to come out with this great education,

and they're going to get great jobs, and the government won't even have to come back and pay you. This is all going to work out just fine. You know, they didn't really consider just how big this program was going to get and that there would actually be a lot of people who might drop out. They really put on rose-colored glasses here and thought that everything would be a win-win. It was here, these surroundings, that I first understood the deeper meaning of the Bible's promise that ye shall know the truth and the truth shall make you free.

The Higher Education Act was passed and signed into law on November 8, 1965. For President Lyndon Johnson, it was an important personal victory. When he went to sign the bill, there was a ceremony at Southwest Texas Teachers College, his alma mater, where he signed it at a desk in the gymnasium with a crowd there looking on. And he basically said, now the pathway is open for people to go to college. Here the seeds were planted, from which grew my firm conviction, that for the individual, education is the path to achievement and fulfillment. And for the nation, it is a path to society that is not only free but civilized. And it was around this point that he told Congress as part of an education message that

college is no longer a choice, it's now a necessity. So I really think he was like the first president to say college was not just for the highest achievers, that it was actually for just about anyone. The Higher Education Act was passed just as baby boomers started arriving on campus. College attendance shot up, but so did inflation. Food costs are very much increased. But so did inflation. United States in the late 60s and early 70s. How much has the price of coal increased in the last year? Coal, approximately 35, 40 percent. One hidden cost is to our sense of freedom. Even our freedom to dream, our normal expectations of getting ahead are being to hopes of holding on. At this time, some banks wouldn't lend to students because the interest rate was lower than the borrowing costs,

so they'd lose money on the loans. Congress raised the student loan interest rate to 10%. By the 70s, Americans are in the tricky situation that they can't afford college and they can't afford not to go to college. You have to be able to compete for that work because in the 70s, those blue-collar jobs, those manufacturing jobs, they're disappearing. There were higher prices, higher unemployment, and a need to go to college to compete in the job market. On top of that, many people who'd taken out guaranteed student loans under the Higher Education Act simply couldn't pay them back.

And a new president, Richard Nixon, walked into this economic situation. People were pissed. We have Americans writing to their elected representatives, talking about the pain, talking about how they can't afford to stay in school, they can't afford to send their kids. They just can't afford it. So this really quickly became a mess. There were some people in the new Nixon administration that were saying, wait a minute, why are we relying on banks?

Let's just have the federal government do this. Even if it is a hit to the federal budget, let's just have the Treasury Department make loans. And there was this guy who used to be a lobbyist for the banks who was now one of the top Treasury Department officials in the Nixon administration who said, no, no, no. The federal government does not have the ability to handle a loan program. The government does not know how to run things like a private sector bank does. It would just be an even bigger mess. It would be inept. Here's what we need to do. We need to create this new entity, and we'll call it Sallie Mae. Sallie Mae is what they call a quasi-public agency where it's overseen by the federal

government, but it's actually a for-profit company. Now, here's the key. Guess who owns Sallie Mae? Because I mentioned that even though their board was, you know, in part appointed by Congress and the White House, its owners, its shareholders were banks and schools. Shareholders, which meant banks and schools had a vested interest in students borrowing as much money as possible. So the federal government, banks and universities all form this organization. And what they decide is... What we're going to do is we're going to have

the Treasury Department in this really opaque way funnel money to Sally Mae, and then Sally Mae in this opaque way is going to funnel money to the banks. Now, if that sounds complicated, it's because it is. Basically, Sally Mae played the role of a middleman, administering student loans from banks that are guaranteed by the government. And it ended up being very good for banks and private partners. Sally Mae created a goldmine because you can buy and sell this student debt. It comes with a government guarantee in the 70s when the economy isn't doing so well. If you're a lender and you're experimenting with these student loans that you're guaranteed repayment on, you'll start experimenting with what we call private loans. Private student loans were basically used by students and their parents to cover anything the government-backed student loans and grants couldn't. So let's say you're a student who has reached the maximum loans you can take out and still need a few thousand dollars more to fully pay your room and board.

Well, a bank participating in the federal loan program, likely buying and selling debt through Sallie Mae, is also there to sell you a private bank loan. That loan is not backed by the government. And what that allows is the bank to essentially set the interest rate for private loans at any rate they want. Because when the government backed a loan, they could set limits on how much interest the bank could charge.

But private loans have no limits. They can have much higher interest rates. That's what really makes the sector profitable, is you start a student lender's portfolio expands, not just have these guaranteed federal loans, but all these private loans for more and more money needed. Basically, Congress said, look, banks, if you make student loans, regardless of how high prevailing interest rates in the economy go, we will reimburse you that interest rate.

Plus, we will give you a spread on top of that. We'll guarantee you a profit regardless of how high inflation goes. No matter what inflation does, we'll make sure you make a profit off these students. An incredible deal for the banks. The banks have no risk at this point. They have zero risk. In fact, the only risk they had was not getting money fast enough out the door because every time they did not make a loan, they were leaving profits on the table. Coming up, banks find a new way to get money out the door, and student debt goes off the charts. I'm Billy from Dayton, Ohio, and you're listening to ThruLine from NPR.

I still have about $40,000 remaining on my loans. I've been chipping away at it slowly at university and non-profit positions in hopes of getting the remaining balance discharged through the public service loan forgiveness program. Part three, not enough and only for a few. Sally May's board met for the first time in February 1973. It was in a restaurant in northwest Washington. During a break, a couple of board members went to the bathroom. One asked the other, Do you think this will ever work?

Not a chance. The 80s saw a rise in tuition, a rise in the number of student borrowers, and a rise in debt. By 1987, students were taking out almost triple the amount of loans as they had the decade before. And as many as half of undergraduates were in debt when they graduated. Again, reporter and author Josh Mitchell.

By the early 1980s, Banks and Sally May figured out, oh, if we can make this operation work like a really smooth operation, if we can computerize this stuff, if we can get more parents to sign up for student loans for their kids, and if we can get the kids to sign up for loans, this actually can make us a lot of money. Have you any idea how much America's colleges have done for you? It was college-trained minds that conquered polio, smallpox, diphtheria. Zalimay worked on being efficient and fast. It standardized the student loan process and invested in new technology to computerize the process. At least one bank even helped install computers in high schools to make it easier to apply for loans. You would have like banks who would hold seminars for parents on the virtues of taking out student loans.

This is an investment in your kid. Sure, I'd like to go to college, but everybody knows how much it costs to go to college these days. My parents want me to go too, but they can't be much help. It's tough enough for them just making ends meet. And then you would have the colleges

who they figured out, oh, wow, because the student loan program help. It's tough enough for them just making ends meet. And then you would have the colleges who they figured out, oh, wow, because the student loan program is up and running now and it's a smooth operation, you know, we can raise our tuition because all of a sudden these kids, all they need to do is just press a computer key and they're able to pay tuition. So like the colleges would, you know, like have recruiting vans and high school parking lots and talk to them about student loans. Student loans went from a steady, reliable stream of income to a very, very big business. And it wasn't just making money for the banks. This school's got quite a reputation in electronics to help you get ahead.

Hundreds of new schools popped up to meet the growing demand for higher education. Many of them were for-profit schools. Maintenance schedule vital to a major airline. Would you like to train to drive the big diesel rigs? Specialty schools that train truck drivers, auto mechanics, chefs, barbers. Schools that cost thousands of dollars in tuition without the promise of a high-paying job. At the same time, government spending in colleges was decreasing, and schools were relying more and more on students' money.

And so if you take a look at a chart of college tuition, it would go up a little bit in the 50s and 60s, and then it was kind of flat in the 70s, and then it just soared in the 80s. That's the era of skyrocketing tuition. Throughout the 1980s, tuition would outpace inflation. At private schools, it rose an average of 145 percent, and the cost of some private colleges near $20,000 per year. I think it's expensive, but I think it pays off in the long run. You know,

you're just investing in your future. There's a lot of financial aid available, so that helps out a lot. I don't think it's that bad. No, I think it's high. I disagree with what you say because I have to work constantly. Meanwhile, Sallie Mae was raking in the cash. By 1983, its shares were being sold in the stock market, and it was worth nearly $7 billion. And it's not like people weren't asking questions. Some lawmakers were critical of Sallie Mae, and there were hearings about it.

But many people, including politicians, had no idea how it all worked. If most members of Congress were asked what they thought of Sallie Mae, they would respond with the question, who is she? Others argued that Sallie Mae was doing exactly what it was supposed to do.

College enrollment shot up in the 1980s. And along with all this, there's a narrative that formed. It was really in the 80s and 90s where you had people saying, their parents saying, you've got to go to college or you're going to not be anything when you grow up. You're going to end up flipping burgers and you'll never make enough money to make it in the middle class if you simply flip burgers.

Or even if you work on the factory floor, that's not the new economy. The new economy requires a college degree and that's the only way you're going to make something of yourself. By this time, the idea that a college loan was quote-unquote good debt, an investment in yourself, something that's good for you, had already taken hold. In a lot of ways, it was a good investment. There were more people that were going to college. There were people who were graduating and getting a good degree and getting, you know, higher pay because of that and rising in the middle class. And so there was a lot of that, but there was also a lot of taking advantage of people.

The 80s is really when we saw a preview of the problems that would come to a head in the 2000s. In the 80s and the early 90s, more students started to default on their loans. Tuition continued rising. And while Congress did increase spending on grants, which is free money for students, the government decided to increase the amount students could borrow. And the problems continued. We are in the midst of a serious financial crisis. Until 2008, when the U.S. economy would come crashing down.

Now it's official, we are in a recession. One financial crisis after another, and it often seemed as if the news could only get worse. The man elected to pull the U.S. out of the worst financial crisis since the Great Depression was a man who had his own experience with student debt. I know about this firsthand. Michelle and I, we know about this firsthand.

This is not something I read in a briefing book. This is not some abstract idea for us. We've been in your shoes. Obama stood out for talking about his student debt. We had a mountain of debt, both of us. That means when we got married, we got poorer together. Talking about how these two very well-trained lawyers had just recently paid off their debt. We only finished paying off our student loans about eight years ago.

Think about that. I'm the president of the United States. And so... The focus is the battles in Congress over what we now call Obamacare, but there was also a fight to replace the Guaranteed Student Loan Program with this experiment in direct lending. And they friggin' managed to do it.

The Obama administration's key legislative victory was the Affordable Care Act, or Obamacare. But attached to that bill was an amendment called the Health Care and Education Reconciliation Act. Education reconciliation. The bill didn't just address health care. It also ended LBJ's guaranteed student loan program, the one that started in 1965. President Obama actually signed the bill at a community college in northern Virginia. He stood up there and said, That's two major victories in one week.

The first was obviously health care. The second ending, quote, what Obama called, A sweetheart deal in federal law that essentially gave billions of dollars to banks to act as unnecessary middlemen in administering student loans, meaning the guaranteed student loan program. The changes would mean the federal government would start lending to students directly. But in a lot of ways, it didn't solve the problem for students. In the streets of New York as tens of thousands march from Foley Square in downtown Manhattan to the Occupy Wall Street in Canton. In the early 2010s, more people with student debt were getting a spotlight.

My sign says that we're approaching a trillion dollars in student debt. The more debt that we accrue and still are not able to get jobs after we graduate kind of doesn't make any sense, does it? We are the 99%! We are the 99%! And today, many students are still forced to take out public and private loans. Sallie Mae is no longer the entity it was in the 1970s. The company split into two in 2014,

into a bank called Sallie Mae that offers private student loans and a separate federal loan servicer. When we reached out to Sallie Mae for comment on this episode, they highlighted this change and said that less than 2% of their loans defaulted in 2021. The government is still contracting with banks to act as debt collectors servicing government loans, which means they're still getting paid by taxpayers to make money off of students. We didn't do anything wrong by going to college. There used to be a recognition that, yeah, it was good for the individual person to have a chance to learn more,

but it was good for the country as a whole, and we've really forgotten that. You're likely to still earn more with a college degree than with that one, even if you do borrow. But there have been insurmountable costs for so many people, especially people of color, particularly women, and even more specifically, Black women. People who can't get out of their debt and who will probably carry it with them forever. Since the beginning, there has always been this question of who gets to go to college. But what about the costs of college, the burden of its lingering debt? Is the individual responsible for that?

Or is it a burden we should share as a society that has repeatedly told young people that education is the way to a better life? President Biden has talked about loan forgiveness, a term that implies the responsibility is on the students themselves. Yet the gatekeepers so far, the government, the banks, the schools, are nowhere near a solution that will stop more students getting into more resting in the admissions and the financial aid officers, as opposed to actually really democratizing access and making sure that we have genuinely good access for all, then it does become this cherry picking and it becomes not enough and only for a few. And that is not democracy. That's it for this week's show. I'm Randa Adel-Fattah. I'm Ramteen Adab-Louie, and you've been listening to ThruLive from NPR.

This episode was produced by me. And me, and... Lawrence Wu. Julie Kay. Victor Ibeyes. Anya Steinberg. Yolanda Sanguin. Casey Miner. Christina Kim.

Devin Katayama. Amiri Tola. Jennifer Etienne. Fact-checking for this episode was done by Kevin Vocal. Thanks to Casey Miner, Don Moore, Dustin Kiskadden, Ryan Muzzy, and Devin Karayama for their voiceover work. Thanks also to Kimberly Sullivan, Tamar Charney, and Anya Grunman. This episode was mixed by James Willits. Music for this episode was composed by Ramtin and his band, Drop Electric,

which includes Anya Mizani, Naveed Marvi, Sho Fujiwara, and finally, if you have an idea or like something you heard on the show, please write us at ThruLine at NPR.org or hit us up on Twitter at ThruLineNPR.

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