Last updated on August 30, 2020
History of Student Loans
Have you ever met someone who thinks college is a turnkey solution?
Just pay pay tuition, attend class, and poof! you’ll land a great job and life is golden.
This is clearly not how things work, so why do people think this?
They’ve been told since kindergarten that a college degree “sets you up” for success. It is a cultural paradigm that benefits the economy and country as a whole, without empowering the individual.
America has lots of cultural paradigms.
For example, homeownership as a “sign of success” is a cultural paradigm. If you know anything about debt, though, this paradigm largely depends on how the home was purchased. Investing in the stock market to save for retirement is a cultural paradigm. When the average American knows nothing about the stock market, is this truly sound advice?
Every cultural paradigm is a collective belief about how something should be done or thought about. They are different than personal paradigms because the purveyors of a cultural paradigm profit from its adoption.
This begs the question, then, who benefits from the cultural paradigm that college sets you up for success?
The answer might surprise you.
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A Quick History of Student Loans
In 1958, the government wanted Americans to excel academically.
World War II was over and it was important to compete intellectually with Japan, Russia and Germany.
To help Americans enroll in school, the government launched a program that encouraged banks to issue student loans to young people.
Before this program, banks were hesitant to lend to students because they might not be able to pay back the loan. The government’s program eliminated this risk by guaranteeing to pay the bank in full if any student defaulted.
By 1986, student loan origination in America rose to $10 billion. More Americans than ever were graduating with 4 year degrees. The message that college = success was further ingrained into our culture’s psyche.
That said, college tuition was reasonable in the 1980’s. The average cost for a four-year public school degree was $2,100 (using 2018 dollars) and students rarely borrowed more than a couple thousand bucks.
Skip forward to 2009.
The financial crisis had hit. To boost morale and keep Americans busy, President Obama passed legislation that allowed the government to lend money directly to students (cutting out the banks). According to a piece written in 2010 by the National Association of Scholars:
Obama wants the United States to have the highest percentage of college graduates in the world by 2020 — a plan that would double the current number of students currently enrolled, from 18 million to 36 million.
By 2018, student loan origination had increased to $120 billion and total student loan debt outstanding in America reached $1.2 trillion.
The average cost of a four-year public school degree increased to $10,300.
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The History of Student Loans Explains Why College in Expensive
Suddenly, for the first time ever, U.S. colleges were paid tuition directly from the U.S. government, via federal student loans.
The alarming thing about the new legislation is that it didn’t come with a single regulation: no tuition caps, no spending caps, no oversight whatsoever.
To be clear, I’m in favor of less regulation and limiting the size of government — but if a government risks trillions of dollars to get every kid enrolled in college, I’d at least expect an oversight committee.
After all, if the government gave you trillions of dollars, you’d find a way to spend it, right? Why would colleges behave differently?
By the way, we’ve seen this playbook before:
In the early 2000’s, the government mandated banks issue more mortgages. Two government agencies, Fannie Mae and Freddie Mac, guaranteed all qualifying mortgages (they would pay the bank for any mortgage that went into default). Banks began issuing millions of mortgages because they no longer carried the risk. This largely contributed to the Financial Crisis of 2008.
Same thing with colleges.
College and university presidents moved quickly to spend the money coming in: Brand new football stadiums, state-of-the-art facilities, million dollar salaries, etc.
Did no one consider the impact this had on the student?
When the government wants to be socialist, it gives away free money. When it remembers America was built on capitalism, it refuses to regulate.
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Student Loans and the Psychology of Debt
I was fortunate that my parents paid for my college, but it took me years to understand the ripple effect it’s had on my life.
Following graduation, I worked odd jobs to save money, I traveled the world, I volunteered, I moved to various cities, and took all sorts of risks that every 20-something-year-old should.
By the time I was 25 and had joined the corporate world, I realized my years of self-exploration were unique. Most of my peers had gone directly from the classroom to the cubicle.
A job can provide invaluable experience and teach us a lot about life — but can a 20 year old kid appreciate that without having perspective?
When the government reinforces the paradigm that college is the “key to success,” and makes it way too easy to borrow money, they are denying young people the freedom of choice.
If you subscribe to The American Dream, you will notice it relies on debt. First is student loans — then credit cards — then auto loans — then you’ll be “successful” and take out a 30-year mortgage to buy a home.
But you own the debt and the government owns you.
You awake yet?
And let’s be real, anyone who cares about you isn’t going to let you borrow $75,000 to study art.
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The Government Is Not Your Friend
Here is a snapshot of Americans’ debt:
I point this out because the more debt we take on, the stronger the economy. This is the government’s agenda. According Psychology Today:
When a person has $100,000 in student loans, they’re more likely to give into temptation and buy that designer watch or those expensive concert tickets. A few hundred dollars doesn’t make a difference to a debt that big.
The government makes getting into debt easy because people in debt consume more and that is good for the economy. They’d prefer you stay in a soul-sucking job and crush your spirit to pay the bills.
Do you wonder why?
Because deflated, depressed people don’t fight authority.
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The History of Student Loans Determines The Future
Obama’s direct federal loans program cut out the banks to give young people better access to debt. Why let the banks profit off student debt when the U.S. government can?
According to an article from 2013 in USA Today:
The U.S. government projects to make more money off student loans this fiscal year than ExxonMobil, Apple, J.P. Morgan Chase or Fannie Mae made on their respective businesses last year.
The problem is the government can’t execute anything so the plan backfired. They were eager to lend money, but they didn’t assess the quality of the borrower, other household debt, the quality of the school, etc. As a result, the default rate on federal student loans has skyrocketed and now the program costs taxpayers $307 billion a year.
What is the future of student loans?
For starters, we need to change the paradigm. Every human life comes with the objective of connecting with his soul and expressing its authentic desires. When humans have the space to do this, they have a chance of becoming their authentic selves.
The problem is everyone, especially young people, are imprisoned by their debt. They don’t have time to explore themselves and align with their hearts — they’re too busy trying to pay the bills! This is criminal.
If our politicians can be this reckless with monetary policy, and print trillions of dollars to bail out banks and cruise lines — they can cancel all student loan debt. Trust me, I never thought I’d support this position but we’ve come to a point where money is a free-for-all in Washington. So fuck it.
The future of student loans needs to start with the government getting out of the way. Cancel all student loans. End the Federal Loans Program. Let the banks assess the risk of the borrower, complete due diligence, and do their job. And perhaps the government can do its job to regulate corrupt industries instead of taking them over to expand the corruption for itself.