Student-loan debt has surpassed credit-card debt to become the second largest category of consumer debt in the United States, trailing only home mortgages. While other forms of personal debt declined in the wake of the Great Recession, the total amount of student-loan debt—which now stands at over $1.3 trillion owed by 40 million people—has continued to grow. More people in the United States owe money borrowed to pay for higher education than at any time in history.¹ The burden of student loans has made it even harder for millions—particularly young people, people of color, and working-class people—to make ends meet at a time when declining real incomes and growing inequality are already eroding their living standards. 

Student-loan debt is so massive and affects so many people that it can too easily take on the air of permanence. But the crisis is the result of a series of purposeful policy choices by and on behalf of those who profit from student loans. Student loans gave more people access to higher education while retaining a federated system funded in large part by individuals, which meant that their use has fueled the rise of a system in which institutions of higher education funnel money from students and taxpayers into the pockets of banks, college administrators, and executives at Sallie Mae and other private and semipublic institutions. The politicians who facilitated the creation of this system and now maintain it receive significant contributions from the very institutions and individuals who profit most from it. This article will trace the historical origins of the student-debt crisis, reveal the inadequacy of the currently proposed legislative solutions, and make the case for free, publicly funded higher education. 

I. The rise of student loans

Student-loan debt emerged as part of a solution to the social problem of how to make college affordable for a growing segment of the population that had previously been excluded from access to higher education.  In the early twentieth century, higher education was largely the preserve of elites. In 1910, just 2.7 percent of the US population, most of them white men, had completed four years of college. Educational attainment rose over the ensuing decades but, by 1940, just 4.6 percent—less than one in twenty adults—had four years of higher education.² The next thirty years—which stretched from the postwar boom to the crisis years of the 1970s—saw even greater increases in the education rate, as the university system expanded to accommodate the need of a changing postwar economy for a larger, more educated pool of middle-class professionals, managers, technicians, and skilled workers. By 1980, at the start of the neoliberal era, 17 percent of the population had four years of college: a 370 percent jump in four decades, and nearly four times greater than the increase of the previous thirty years. By the end of the twentieth century, about a quarter of the population had four or more years of college.

This necessarily involved a “democratization of higher education,” made possible by funding for public higher education, grants, work-study programs, and loans that enabled more people from socially and economically marginalized groups to afford college. Whereas the proportion of white males with four or more years of college increased more than fivefold between 1940 and 2010,  “more than twenty-five times as many white women, nearly ten times as many black men, and thirteen times more black women twenty-five to twenty-nine had completed college in 2010, compared to 1940.”³ The gains of the civil rights and Black power movements—in particular the Higher Education Act of 1965, which introduced federal grants and loans for low-income students—paved the way for this “democratization,” following on earlier initiatives like the 1944 GI Bill. College enrollment has continued to increase in the twenty-first century: by 2012, fully 41 percent of people aged eighteen to twenty-four were enrolled in college, up from 35.5 percent in 2000.⁴ Higher education still reflects the inequalities and injustices in society as a whole, but it has evolved to include significant sections of groups—such as working-class people, women, and people of color—who were previously excluded almost entirely.

The rising cost of college
While greater, relatively more diverse numbers of people have enrolled in higher education, tuition and fees have risen over the past several decades much faster than the prices of other goods. Beginning in 1980, college costs grew at nearly double the rate of health care, four and a half times as fast as the price of food, and four times as fast as the consumer price index, which measures the cost of a bundle of goods purchased by a typical urban household.⁵

In real terms, the cost of tuition and fees for universities and colleges has more than tripled over the past thirty-five years. Between 1980 and 1990—having only increased 2 percent over the previous five years—average yearly tuition and fees at a private nonprofit four-year college, in 2014 dollars, increased by 60 percent, from $10,511 to $16,591. By 2014, tuition and fees had risen to more than $31,000.⁶ Public four-year institutions raised yearly tuition and fees by even greater amounts. From 1975 to 1980, tuition and fees actually decreased at these colleges by 3 percent, to $2,405 in 2014 dollars. They then doubled over the next twenty years to $4,805 in 2000, and nearly doubled again over the next fifteen, reaching $9,139 in 2015—an increase of 380 percent in thirty-five years.

Stagnant wages and skyrocketing inequality
The huge jump in college tuition and fees was compounded by the fact that over the past three decades, and especially in recent years, wages and household incomes had stagnated or declined. From 1980 to 2007, median household income increased 18 percent, whereas the cost of higher education grew more than ten times as much.⁷ In the years during and following the Great Recession of 2007 to 2009, median household income dropped by over 7 percent.⁸ Losses were worst for those in the lower- and middle-income brackets, who have lost ground since the turn of the twenty-first century,⁹ since most of the jobs gained in the recovery from the Great Recession pay much less than those they replaced and the bulk of income gains have gone to those at the top of society.¹⁰

Throughout the past few decades, income inequality has risen to levels as high or higher than on the eve of the stock market crash of 1929 that triggered the Great Depression.¹¹ In the thirty years from 1983 to 2013, wealth for lower- and middle-income families was stagnant, while for upper-income families it doubled.¹² The income and wealth gap between races is huge, putting Blacks and Latinos at a significant disadvantage when it comes to paying for college. On average, white households have thirteen times the wealth of Black households, up from eight times in 1983. White household wealth is ten times that of Latinos, about the same as thirty years ago.¹³ Increased income and wealth inequality have made it harder, if not impossible, for greater numbers of people to afford college.

The Center for Economic and Policy Research found that in 1979–80 the cost of a year of tuition at a public four-year institution was equivalent to 254 hours’ worth of pay (before taxes) at the federal minimum wage. By 2009–10, public four-year colleges charged tuition equivalent to 923 hours at the minimum wage. For private four-year institutions, tuition in terms of minimum-wage hours jumped from 1,112 to 3,201 over the same period, increasing to the equivalent of one and a half years’ gross pay for a full-time worker earning minimum wage.¹⁴ It is no longer feasible for working-class people and all those without significant savings or other assets to pay for college as they go.

Shifting the burden from the state to individuals
At the same time that college has become increasingly unaffordable, state funding for higher education and federal grants has declined:

In 1980, the maximum Pell grant covered 69 percent of the cost of tuition, fees, and room and board at a public four-year college. By 2010, the largest Pell grant would cover only 34 percent . . . the share of all federal financial aid supplied by grants had fallen from 55 percent in 1979 to only 26 percent in 2007. . . . Nationally, between 1990 and 2010, state support per student fell more than 25 percent.¹⁵

Pell grants still face cuts: as recently as December 2014, Democrats introduced cuts of $303 million to the program, and Republicans have pushed for even more.¹⁶

Austerity policies in the wake of the Great Recession have meant even further cuts to state spending on higher education. On average, states spent 28 percent less on higher education in 2013 than they did in 2008.¹⁷ The burden of paying for higher education has increasingly shifted from the states and the federal government onto students and their families, so that public colleges and universities that, in 1987, received 3.3 times more revenue from the state than from tuition now receive only 1.1 times more state funding than they take in from tuition. Students at state colleges now pay more in tuition than the states give the schools in funding, a major turnaround.¹⁸

This is in line with broader trends under neoliberalism, where public funding for social services has been cut and the burden shifted onto individuals, both in the form of tuition payments as well as student loans. In addition, it represents a shift away from treating higher education as a public institution to be financed through tax dollars toward a model of higher education as an individual investment.

A solution becomes a problem
The decline of state funding, combined with rising tuition rates, has led to a dramatic increase in the volume of government-backed or -provided student loans. This is in line with the growth in other forms of consumer credit, which grew for decades up until the Great Recession, used by working-class households to help counteract a declining standard of living caused by stagnant wages and rising costs of essentials like health care and housing.¹⁹ 

Student loans have been around for decades, but have grown tremendously in recent years. Between 1993 and 2010, student loans quadrupled from $31.3 billion (in 2013 dollars) to $122.1 billion. Over the next nine years, the total amount of new loans per year more than doubled, peaking at $122.1 billion per year in 2010–11, about four times the amount loaned in 1993–94.²⁰ By comparison, college enrollment increased by just 32 percent.²¹ The amount of new loans granted in the years since has declined to $106 billion in 2014, but that is still higher than at any point prior to the Great Recession.

The increase in the amount lent per year has led to increases in the total amount of student-loan debt outstanding. This was caused by rising default rates in the wake of the Great Recession; by 2012, two-year default rates had reached 10 percent, while one in seven borrowers defaulted within three years of their loans coming due.²² Unlike most other forms of debt, student loans cannot be discharged in bankruptcy; default leads to significant penalties and fees that are tacked onto the principal. The penalties and fees associated with defaults have long been a source of significant profits for lenders and collection agencies. Total outstanding student-loan debt increased more than 4.5 times between 2003 and 2014, far outstripping growth in auto loans and credit cards, the other major forms of nonmortgage consumer credit.²³ The average amount of debt per borrower increased by 70 percent between 2004 and 2012.²⁴ The college class of 2014 is the most indebted so far; the average graduate with debt owed $33,000, about double what the average borrower owed two decades prior (in inflation-adjusted terms). According to the Wall Street Journal, “over 70 percent of this year’s bachelor’s degree recipients are leaving school with student loans, up from less than half of graduates in the Class of 1994.”²⁵  To place the $1.3 trillion of outstanding student-loan debt in the United States in context, it is nearly equivalent to the gross metropolitan product of the greater New York City metropolitan area—or the gross domestic product of Spain.²⁶ Only home mortgage debt, which stands at $13.3 trillion, is larger than total student debt.

Millions of people who would have been unable to attend college have been able to do so because of access to loans. However, by further shifting the burden of paying for college onto individuals, the growth of student loans has simply put off the onset of the crisis of college affordability to the time when loans come due for repayment, as large numbers of borrowers find it difficult, if not impossible, to pay off their loans on time. 

As noted above, replacing grants and funding for public higher education with student loans has meant a shift away from state-subsidized higher education toward a more privatized, commodified model. However, it is important to understand that this has not meant abandoning state involvement in higher education. The government’s support for student loans—in the form of legislation, funding, and guarantees to back loans in the case of default—created the system of student loans as we know it today and enabled its expansion. So while there has been a withdrawal of government support for ordinary people, capital has enjoyed federal intervention that has ensured it significant profits.

II. A brief history of student loans

Until the 1950s, college loans were relatively rare. Where they did exist, most were extended by colleges themselves. This changed in 1958 with the passage of the National Defense Education Act (NDEA), passed during the Cold War and promoted as helping the United States achieve an edge over the Soviet Union. The launch of Sputnik in 1957 had sparked worries that the United States was falling behind the Soviet Union in science and technology, keys to achieving imperial dominance in the age of nuclear bombs and intercontinental ballistic missiles.²⁷ In addition to programs to strengthen education in science, mathematics, and foreign languages (especially Russian)—such as funding for science equipment and textbooks to public and private schools—the NDEA created the first federal loans for higher education. Federal funds were provided to colleges to lend to students, with a requirement that colleges match a minimum of $1 for every $9 they received from the government. Students could borrow $1,000 per year, up to $5,000 total. The passage of the NDEA led to a sharp increase in students borrowing to fund their college educations. In 1957, the year before the NDEA passed, just 80,000 took out student loans.²⁸ By 1964, more than triple that number, some 247,000, borrowed nearly $120 million under the NDEA (more than $900 million in 2014 dollars).²⁹

In true Cold War fashion, until 1962 the NDEA required borrowers and fellows to take a loyalty oath: “I do not believe in, and am not a member of, and do not support, any organization that believes in or teaches the overthrow of the United States Government, by force, or violence, or by any illegal or unconstitutional methods.”³⁰ The inclusion of a loyalty oath caused several colleges, including elite institutions such as Harvard and Yale, to boycott the NDEA, while other institutions that participated in the program, such as Columbia University, saw opposition from students, professors, and administrators. An editorial in the Queens College campus newspaper in 1959 stated that the loyalty oath “discriminates against students by singling them out for suspicion; that it serves no real purpose, since any subversive would not hesitate to sign it; that it violates the First and Fifth Amendments; that it limits freedom of opinion and inquiry; in short, that it is an insult to the integrity of the American student.”³¹

The NDEA helped pave the way for the expansion of student loans, but did not significantly expand enrollment on its own. That would come a few years later, with the passage of the Higher Education Act (HEA) of 1965. The HEA was not primarily about student loans:

The bill contained programs to support extension and continuing education . . . improve college libraries, and to strengthen “developing” colleges (such as historically black institutions). [The HEA] also included federally funded scholarship and work-study programs targeted for low-income students. In the original $250 million budget, money for student loans was the smallest item.³²

As part of the Great Society programs won by the civil rights movement to address racial and economic oppression and inequality, the HEA contained real gains—such as access to grants and loans—that expanded access to higher education for marginalized and oppressed groups. However, the bill contained a Trojan horse: it created the first federally guaranteed loans to be made by private lenders but backed and subsidized by the federal government with public funds. This provided an opening for making private profits on the backs of student borrowers, and in the coming decades student loans would emerge from the shadow of grants and work-study programs and grow to become the largest form of individual debt besides home mortgages.

Rather than using federal funds to make loans as under the NDEA, federally guaranteed loans, known as the Guaranteed Student Loans program—later the Federal Family Education Loan program (FFEL)—were designed to use public funds to entice private lenders to make the loans. Most unemployed eighteen-year-olds who asked to borrow tens of thousands of dollars would be laughed out of the bank, yet they are able to rack up the same amount of debt in the form of student loans. In order to make lending to students attractive to banks and other creditors, the federal government sweetened the pot. They guaranteed to cover the loans in case of default—limiting potential losses—and subsidized many of them. The federal government even subsidized for-profit collection agencies to go after borrowers in default.

In 1972, the creation of the Student Loan Marketing Association (later known as Sallie Mae) further spurred the expansion of student loans. Until 2004, when Sallie Mae was fully privatized, the agency was a “government-sponsored enterprise” (GSE), a semipublic entity created by Congress to encourage the flow of capital into specific industries. Sallie Mae created a secondary market for student loans, similar to the role of GSEs Fannie Mae and Freddie Mac in the housing industry. The agency secured low-interest loans from the government, which it then used to purchase loans from lenders. This injected more capital—via public funds—into student-loan markets, allowing creditors to loan more, and made Sallie Mae an increasingly profitable enterprise in its own right.³³

In the late 1970s and early 1980s, politicians and media figures focused on the issue of “student deadbeats,” those who did not pay back their loans. Presidents Carter and Reagan both addressed the issue, with Carter denouncing “deliberate cheating by college students off the taxpayers”³⁴ and Reagan calling for students to “do their part and act responsibly.”³⁵ This shift toward education as an individual investment and a personal responsibility was in line with broader attacks on the gains of movements of the 1960s and 1970s. Republican representative Albert Quie even claimed that a student had told him he had used his loans to buy a Corvette, “the issue’s equivalent of the welfare Cadillac,” a racist caricature used to attack welfare programs.³⁶ The truth was that while the overwhelming majority of borrowers repaid their loans, all of the private lenders participating in the program were receiving government handouts in the form of subsidies and financial guarantees.

Congress, in this period, placed a series of restrictions on student loans, making it harder to get out of debt through bankruptcy as well as making it easier to collect in the case of default. As a result, defaulting on a student loan could now result in losing eligibility for additional aid and access to repayment plans, the loss of professional licenses, damaged personal credit, income-tax returns being seized to pay off debts, late fees, collection fees, “any other costs associated with the collection process,” and the garnishment of wages and even Social Security benefits.³⁷

In 1992 Congress reauthorized the HEA, expanding access to subsidized loans to those from higher-income families without similarly expanding grant aid. This, along with rising tuition, helped to fuel the growth of student loans.³⁸ In 1993, President Clinton signed legislation establishing the Federal Direct Loan Program, whereby the federal government would lend directly to students as a way of cutting out middlemen (although federally guaranteed loan programs were retained). This threatened private investors and Sallie Mae, which lost half its value as direct loans grew to more than 30 percent of the student-loan market. Sallie Mae aggressively lobbied Congress and was able to win additional subsidies and protections to ensure the continued dominance of federally guaranteed loans, even though they cost the government more to provide. By 1998 it had become nearly impossible to discharge student loans in bankruptcy, and other protections were removed from student debt, which was “exempted from state usury laws, and . . . even exempted from coverage under the Truth in Lending Act.”³⁹

Sallie Mae grew massively through the late 1990s and into the new millennium, its stock price increasing by 1,700 percent in the last five years of the century. It worked to achieve a dominant position in the student-loan industry, purchasing lenders, guarantors, and collections agencies. By 2006 it had become dominant in the student-loan industry, four times bigger than Citibank, its nearest competitor. Sallie Mae CEO Albert Lord, who made more than $220 million during these years and had holdings in the organization worth nearly half a billion, became so wealthy that he attempted to purchase the Washington Nationals baseball team.⁴⁰

The changing picture
In 2010, the Health Care and Education Reconciliation Act eliminated new federally guaranteed student loans. However, the program will die a slow death, as those who borrowed before 2010 will continue to pay off their loans for years to come. In 2010, when they were discontinued, FFEL loans comprised nearly 70 percent of all federally provided or backed loans. Today about 35 percent of federal student-loan debt—$395 billion—is in the form of the FFEL program loans, held by just under 20 million borrowers.⁴¹ The capital for these loans was provided by private lenders but guaranteed by the government. Sallie Mae, banks and other private lenders, and collections and guarantee agencies all made hundreds of millions off of these loans between 1965 and 2010. Sallie Mae has spent tens of millions in lobbying elected officials over the past quarter-century to grease the wheels of this process. For example, from 1987 to 2014, Sallie Mae’s political action committee (PAC) donated nearly $7 million to individual politicians and PACs.⁴²

Today, the vast majority of student-loan debt is backed or subsidized by the federal government. As of the fourth quarter of 2014, outstanding federal student loans totaled $1.13 trillion, over 85 percent of total student-loan debt. Nearly two-thirds of this debt is now in the form of direct loans made by the federal government. Almost 27 million people hold these loans, which total over $726 billion.⁴³

Private loans
Private loans are a relatively small but lucrative part of the student-loan market. They grew leading up to the Great Recession and, although they declined sharply after 2007–2008, their growth has resumed once again. In 2007–2008, private loans accounted for 25 percent of new student loans, dropping to just 7 percent before reaching 9 percent in 2013–14.⁴⁴ Prior to the Great Recession, there were strong parallels between subprime loans and private loans. Private loans, which generally have higher interest rates than federal direct or guaranteed loans, were disproportionately made to African Americans in the lead-up to the Great Recession, and nearly half of those who take out private loans have not exhausted all options when it comes to taking out federal loans available at cheaper rates.⁴⁵

Who owes?
Student-loan debt both reflects and reproduces the inequalities that exist in the broader society. People of color, working-class people, and young people are all more likely to be burdened by student-loan debt. The cost of servicing this debt—paying back principal and interest—contributes to them falling further behind wealthier and whiter individuals who are less likely to graduate with debt. While 20 percent of the population as a whole had student-loan debt in 2012, 34 percent of African Americans and 28 percent of Latinos were in debt, compared to 16 percent of whites, according to an Urban Institute analysis.⁴⁶ This disparity would be striking enough if whites, African Americans, and Latinos graduated from college at roughly the same rate. However, despite being more likely to carry student-loan debt, Blacks and Latinos are much less likely than whites to complete a degree program. According to the US Census Bureau, in 2013 just 31 percent of Blacks and 22 percent of Latinos ages twenty-five and older had attained a two-year, four-year, or advanced degree, compared with 42 percent of whites.⁴⁷ In other words, Blacks and Latinos are more likely to have student-loan debt than they are to have a four-year college degree to show for it.

There are many likely causes of this disparity, including the fact that Black and Latino families earn less and have fewer savings, while Blacks and Latinos are more likely than whites to attend for-profit colleges that have incredibly low graduation rates, especially for Black and Latino students. Median income for Black households is less than 60 percent that of whites, while Latino households pull in less than 70 percent.⁴⁸ However, the wealth gap is much sharper. Median net worth for white households is more than nine times that of Black and seven times that of Latino households. Therefore, more Black and Latino families have to borrow—and borrow more—to afford college.

As a share of household income, the poorest households face the greatest burden from student-loan debt. In 2010, outstanding student-loan debt was 24 percent of household income for those in the bottom 20 percent of earners, double that of the middle 20 percent, and more than triple that of the top 20 percent. In spite of the fact that those who earn more are much more likely to have attended college, this reflects the extreme inequality across society while also contributing to it by increasing expenses disproportionately for the poorest households.⁴⁹

As is to be expected, young people are most likely to have student-loan debt: 40 percent of those aged twenty to twenty-nine carry student loans. However, significant numbers of older people have student-loan debt, both as a result of loans that take years to pay off and from going back to school. Some 30 percent of those in their thirties owe, as do 19 percent of those in their forties and 12 percent of those in their fifties.⁵⁰ Student debt among senior citizens is increasing. Nearly three-quarters of a million households headed by senior citizens (ages 65 and up) have student-loan debt, with total student debt in that group increasing from $2.8 billion in 2005 to $18.2 billion in 2013. Senior citizens are more likely to be in default on their student loans, which has resulted in a significant increase in the garnishing of Social Security retirement and disability benefits:

Between [2002] and 2013, Social Security garnishments for defaulted student-loan debt increased five-fold across all ages. During that same period, the number of borrowers 65 and older who saw their monthly Social Security checks reduced jumped roughly 500 percent, from 6,000 to 36,000 borrowers . . . older student-loan borrowers can now be left with Social Security payments that are as little as $750 each month, which is below the federal poverty line.⁵¹

The impact on borrowers
Students who borrow to fund their higher education often foreclose a significant chunk of their futures—their working lives—in exchange for the education and training necessary for a chance at a well-paying job. Because student loans cannot be discharged in bankruptcy and those who do not pay face high penalties, fees, and the threat of garnished wages and benefits and suspended professional certifications, borrowers are stuck paying them back for years.

Depending on the type of student-loan debt, borrowers may begin making payments upon graduation or after a “grace period” of a few months. Direct federal student loans have a grace period of six months. However, interest usually begins to accrue during the grace period itself, so the amount owed can grow during this time.⁵² 

Paying off student loans is a significant burden. The average debt burden of those in the class of 2014 who graduated with debt is $33,000. At 4.66 percent interest, a borrower in New York making $40,000 per year would pay $345 per month, close to 10 percent of their pretax income. They would end up paying a total of $41,424 in principal and interest over ten years.⁵³ They could also elect to pay over an extended period of time, reducing monthly payments across the board or in the early years of the loan. However, this causes more interest to accrue, and borrowers end up paying thousands more over the life of the loan. If they qualify for and take advantage of the Income-Based Repayment program, they could pay as little as $187 per month but over a longer period, thereby paying back a larger total of over $46,000.

Student-loan debt takes a substantial bite out of borrowers’ income, particularly during the first years of their working lives, when wages tend to be lowest. This has been especially taxing in recent years, as young people faced higher rates of un- and underemployment in the wake of the Great Recession, and as the percentage of recent college graduates who are unemployed reached its highest level since the early 1990s.⁵⁴ Since the Great Recession, young adults with student-loan debt have been much less likely to take on mortgages to buy homes or automobiles. Prior to the Great Recession, they were more likely to take out loans and buy cars and homes than those without student loans. This was because

student debt holders have higher levels of education on average, and hence, higher income potential. Simply put, these more educated, often higher-earning, consumers were more likely to buy homes by the age of thirty. . . . However, the recession brought a sudden reversal in this relationship. As house prices fell, homeownership rates declined for all types of borrowers, and declined most for those thirty-year-olds with histories of student loan debt.⁵⁵

By 2013, thirty-year-olds with student-loan debt were less likely than those without to have purchased a home.

The combination of record levels of debt and a particularly bad job market for young workers has meant a significant increase in the number of young people with college degrees living at home with their parents. In 2011, 45 percent of recent college graduates (ages 18 to 24) lived at home with their families, up from 31 percent in 2001. For college graduates ages 18 to 34, the relative increase was even greater over the same period, rising from 13 percent to 21 percent.⁵⁶ 

Analysis by Demos suggests that student loans act as a multiplier that reduces wealth accumulation over the lifetime of a borrower. Because student-loan debt disproportionately affects those from social groups with the least wealth, in particular people of color, this means that student-loan debt may function to increase wealth inequality even further. According to Demos,

an average student debt burden for a dual-headed household with bachelors’ degrees from 4-year universities ($53,000) leads to a lifetime wealth loss of nearly $208,000. . . . We can generalize this result to predict that the $1 trillion in outstanding student loan debt will lead to total lifetime wealth loss of $4 trillion for indebted households.⁵⁷

The financial impact of student-loan debt can lead to serious—even deadly—health outcomes. Studies have found links between high levels of debt and increased mental and physical health problems.⁵⁸ In some cases it can even lead to suicide. C. Cryn Johannsen, a journalist who has covered the student-loan crisis for years, including the issue of related mental health issues and suicides, is frequently contacted by debtors considering suicide. She writes of Jan Yoder, 35, of Illinois, who “after incurring $100,000 in student loan debt” and struggling to “find a job in his field,” took his own life in 2007.⁵⁹ Debt collectors continued to call his mother to collect on his debt as she prepared for his funeral. 

Then there was Michele Guidoni: 

According to his mother, Gail, Michele was severely depressed because his student loans had grown to more than two hundred thousand dollars; he had consolidated them at a high rate and was unable to refinance the debts when the rates dropped . . . on September 28, 2005, he shot and killed himself. . . . Gail says she still receives bills from the student loan company, even though she has repeatedly returned them to the sender with the message that he is deceased.⁶⁰

The structure of student loans places tremendous pressure on debtors to find and remain employed in order to avoid missing payments. The need to make loan payments on time each month makes it harder to accumulate a rainy-day fund and makes the consequences for going without a paycheck—for example in the event of a strike or a personal crisis—even higher. 

On the other hand, student loans put downward pressure on debtors’ living standards and foster discontent that can give rise to social struggles. Student-loan debt was a key issue taken up by the Occupy Wall Street (OWS) movement, and educated young people facing dim prospects for the future have been active in struggles from OWS to the Arab Spring.

Who profits?

For-profit colleges
For-profit colleges are a major beneficiary of student loans, with publicly traded for-profit education companies depending on the federal government—in the form of student loans, grants, and the GI Bill—for 86 percent of their funding.⁶¹ Their predominant business model is essentially to accept as many students as possible, use up their ability to borrow, and then toss them aside—more often than not, without a degree. These colleges have exploded in size in recent years, at public expense:

Between 1990 and 2012, undergraduate enrollment at private for-profit institutions increased by 634 percent, from 0.2 million students in 1990 to 1.5 million in 2012. Most of this growth occurred between 2000 and 2010 when undergraduate enrollment at private for-profit institutions quadrupled (from 0.4 million to 1.7 million students); in comparison, enrollment increased by 20 percent at private nonprofit institutions and by 30 percent at public institutions during this period. As a result of these different rates of enrollment growth, the proportion of all undergraduate students enrolled at private for-profit institutions increased from 3 percent in 2000 to 10 percent in 2010.⁶²

Although they still enroll a relatively small percentage of students, students at for-profit colleges account for a disproportionate share of student loans. For-profit schools “have accounted for roughly an eighth of all students and a quarter of all student loans, but about half of the defaults.”⁶³ A 2012 Senate report found that 96 percent of students at for-profit colleges borrow to pay for tuition, compared with 48 percent at four-year public institutions and 13 percent at community colleges: “Independent students, who make up most of the for-profit student body, leave for-profits schools with a median debt of $32,700, but leave public colleges with a median debt of $20,000 and private nonprofit colleges with a median debt of $24,600,” the Senate report found.⁶⁴ 

For-profit colleges have “some of the highest profit margins in the country,” as well as some of the highest dropout rates. Apollo Education Group, whose University of Phoenix is the largest for-profit college, with over a quarter million students, had a 66 percent associate-degree withdrawal rate in 2010, yet had profit margins of 21 percent. Bridgepoint Education, Inc., had a profit margin of 30 percent to go along with an 84 percent associate-degree withdrawal rate. Just 32 percent of full-time students who entered a bachelor’s-degree program at a for-profit college in 2006 had graduated by 2012, compared to 55 percent at public colleges and 66 percent at private nonprofits.⁶⁵

Top executives at for-profit institutions make substantial amounts of money. According to the Senate report, the highest-paid executives at publicly traded for-profit education companies earned upward of $89 million in 2009. Many of the top for-profit institutions spent more money—the vast majority of which comes from public funds—on marketing than on actual student instruction. Apollo spent $2,225 per student on marketing in 2009, more than double the $892 per student they spent on instruction. For-profit colleges would make just a fraction of the revenues and profits without student loans. Because of the decentralized nature of distributing public funds that goes along with funding higher education through loans, public money is funneled to institutions providing education of questionable value with relatively lax oversight and little accountability.

For-profit colleges contribute significantly to racial and economic disparities in student-loan debt, as they disproportionately target and enroll students of color and the poor, saddling them with greater debt loads and inferior educations. According to the Education Trust:

The rapid rise of the for-profit industry has largely been driven by the aggressive recruitment of low-income students and students of color. . . . Low-income and minority students make up 50 and 37 percent of students at for-profits, respectively. . . . More than a quarter of Black, Hispanic, and low-income students began their college careers at for-profit institutions in 2003–04, compared with only 10 percent of whites and seven percent of non-low-income students. And while for-profits enroll only 12 percent of all college students, they are responsible for 20 percent of Black students and a full 24 percent of [low-income] Pell Grant recipients.”⁶⁶

Sallie Mae and the big banks
As noted above, Sallie Mae has made big money off of student loans (including increasingly private loans), expanding its roles to become a lender as well as acquiring guaranty and collections agencies.⁶⁷ In 2003, Sallie Mae CEO Albert Lord, who made more than $235 million in his nine years at the company’s helm, boasted that an important part of the company’s record earnings came from collections on defaulted loans.⁶⁸ In addition to Sallie Mae, major banks profited handsomely from student loans, both federally guaranteed loans made prior to 2010, as well as private loans since then. Until 2010, banks such as JP Morgan Chase, Citigroup, and Wells Fargo were major players in the loan market.

Guarantors and collection agencies
 While the federal government no longer guarantees loans by third-party lenders, it still awards contracts to private companies to collect on student loans.⁶⁹ According to projections by the Department of Education, the government will hand over some $1 billion to private debt collectors in 2014, rising to $2 billion in 2016 with little effective oversight of these agencies. The US Department of Education 

rewards the agencies based on the total amount of money collected from student loan borrowers, regardless of the harm caused to student loan borrowers and regardless of legal compliance. Ironically, this same system, which lets collection agencies break the law without consequence, imposes severe consequences on borrowers when they get into trouble and fall behind on their payments.⁷⁰

The financial rewards for collection agencies created incentives to deceive borrowers and point them toward outcomes that are best for the agency rather than for the borrower. In 2012, the federal government changed the incentive structure, which had previously encouraged collection agencies to steer borrowers in default toward repayment plans that would have them paying higher amounts based on what they owed, rather than income-based plans that would result in lower monthly payments. After this change, there was a marked increase in the relative number of borrowers placed in income-based rehabilitations: 

The rules and regulations did not change during this period. What did change was the way that the collection agencies were paid. The result? More affordable and successful rehabilitations for student loan borrowers. The bottom line: money, not the law, drives collection agency behavior.⁷¹

In their pursuit of profits, private collections agencies whose profits depend on federal funds have been accused of frequent abuses of borrowers. One borrower writing to StudentLoanJustice.org said that “they have called my employer, misrepresented themselves as a credit card or loan company or told them I didn’t pay my debts; they have called my neighbors . . . they have screamed at me on the phone, insulted my character, have called me lazy, called me a liar.”⁷²

Employers
Employers benefit from having access to a larger pool of workers with degrees or some college, paid for in part by student loans. This helps to shift the cost of training workers onto workers themselves, rather than employers or the state. In addition, indebted workers who cannot afford to miss a payment on their loans are more desperate to find and hold a job, which gives more leverage to the employer in negotiating wages and working conditions. As noted above, loans raise the stakes for missing a paycheck, so borrowers can in many circumstances be more easily dissuaded from organizing and going on strike.

Loan-forgiveness programs encourage employees to work in certain fields. Direct loans are forgiven after ten years for those who work in what are deemed “public service” fields. While this includes jobs like teaching, nursing, library services, and working with those with disabilities, it also includes law enforcement and military careers.⁷³ Essentially, loan-forgiveness programs act as a federal subsidy for these employers. While schools, public hospitals, and libraries face funding shortfalls, police departments and the military are already flush with federal dollars.

College administrators
While they do not make as much as the executives at for-profit colleges, top administrators at private nonprofit and public universities are paid large salaries by institutions that depend significantly on student loans for funding. These institutions would not be able to charge what they do and sustain current enrollment and administrative staffing levels without funds from student loans. In 2012, thirty-six college presidents earned over $1 million, while the average across the board was $400,000.⁷⁴ Throughout the past several decades, the rise of student-loan debt has paralleled a rise in the number and compensation of administrators at institutions of higher education. From 1975 to 2005,

the faculty-to-student ratio has remained fairly constant, at approximately fifteen or sixteen students per instructor. One thing that has changed, dramatically, is the administrator-per-student ratio. In 1975, colleges employed one administrator for every eighty-four students and one professional staffer—admissions officers, information technology specialists, and the like—for every fifty students. By 2005, the administrator-to-student ratio had dropped to one administrator for every sixty-eight students while the ratio of professional staffers had dropped to one for every twenty-one students.⁷⁵

From 1998 to 2008, spending on “administration and staff support” increased by 36 percent, compared to a 22 percent increase in spending on instruction.

According to an investigation by the New York attorney general’s office begun in 2006, many administrators and universities “were profiting tremendously from their relationship with student loan companies, and that in exchange for being on the universities’ preferred-lenders list, the student loan companies were involved in many illegal financial transactions.”⁷⁶ In a practice that Andrew Cuomo, then state attorney general, called “not just the exception . . . this is the rule,” college financial aid officers received gifts from lenders, including vacations, revenue sharing agreements, and board seats, in exchange for steering students their way.⁷⁷

Recent legislation to address the crisis
In recent years, the government has enacted some reforms that have provided assistance to some borrowers with heavy debt loads relative to their income. However, the programs are restrictive, fall far short of what is necessary to address the crisis, and still leave participants with a heavy debt burden. In addition, because they leave intact the overall system of financing college with loans, they are subject to being rolled back.

Income-based repayment
In 2007, Congress passed the College Cost Reduction and Access Act. The bill increased Pell grants for low-income students by 25 percent to a maximum of $5,400 per year, halved interest rates on new federal loans from 6.8 percent to 3.4 percent over four years, enacted public-service loan forgiveness as described above, and introduced Income-Based Repayment (IBR), which caps payments on loans at a percentage of the borrower’s income, if that would be less than what they would pay otherwise.⁷⁸ Under the IBR plan, those with loans from before July 1, 2014, can have their monthly payments capped at 15 percent of their discretionary income, which is the amount earned over and above 150 percent of the poverty level.⁷⁹ For a single individual living in one of the forty-eight contiguous states, 150 percent of the 2014 poverty level is $17,505. So, someone earning $35,000 per year would have their payments capped at 15 percent of their earnings above $17,505. That works out to just under $220 per month. After twenty-five years of making payments—which increase with income—borrowers are eligible to have the rest of their debt written off. However, they must pay taxes on the debt that is forgiven.

While IBR can help those with large loan balances afford monthly payments they would otherwise be unable to make—assisting them in avoiding default and the high penalties and fees that go along with it—it still leaves borrowers paying a significant amount for decades. Because more interest accrues over that longer period, those enrolled in IBR plans can also end up paying more over the life of the loan.⁸⁰ So, those with lower incomes or greater debt burdens—disproportionately people of color, women, and immigrants—may end up paying more in the long run, contributing to existing inequalities.

IBR is underutilized. In 2012, three years after the program began, “5 million student-loan borrowers . . . [had] least one loan that [was] past due . . . as of February, only 630,000 people were enrolled in IBR.”⁸¹ The program was confusing and difficult to apply for, particularly for those with different types of federal and federally backed loans. In addition, many borrowers hadn’t heard of the program, and lenders were often hesitant to let them know about it.⁸²

Pay as you earn
In October 2011, with Occupy Wall Street picking up steam and a petition on the White House website generating 30,000 signatures in one month demanding student-debt relief, the Obama administration announced that it would take executive action to enhance IBR under the Pay As You Earn (PAYE) program.⁸³ Beginning in 2012, PAYE dropped the cap to 10 percent of discretionary income and the length of repayment to twenty years, and streamlined the application process to make it easier to enroll in the program. However, the program only applied to loans taken out in the 2007–8 academic year, and only for those who borrowed in the 2011–12 fiscal year or later.⁸⁴ So, those who had already graduated when the program was introduced were left out of the expansion. In the summer of 2014, President Obama expanded the PAYE program yet again by executive order. Starting in December 2015, the program will be open to everyone with federal loans, regardless of when they took them out.

This will open the program up to an estimated additional 5 million people, assuming they learn about the program and sign up. Because PAYE caps payments at a lower percentage of discretionary income over a shorter period of time, it means borrowers will repay less over the life of the loan than they would under the original IBR program. However, payments take a significant bite out the paychecks of low-income workers, and many borrowers will still end up paying more over twenty years than they would under a standard ten-year repayment schedule.⁸⁵

The Bipartisan Loan Certainty Act of 2013
As noted above, interest rates on federal student loans vary based on the year they were taken out. This means that borrowers can end up paying interest rates that vary widely depending on when they happened to go to college. In recent years, interest rates on federal loans for undergraduates have ranged from 3.4 percent to 6.8 percent. In 2013, 3.4 percent interest rates set by the College Cost Reduction and Access Act expired, causing them to double to 6.8 percent. Democrats introduced legislation to keep rates at 3.4 percent for another year, but Senate Republicans filibustered it.⁸⁶ Later that summer, Congress passed and President Obama signed a compromise, the Bipartisan Loan Certainty Act of 2013. This tied interest rates on student loans to ten-year Treasury notes. Undergraduates will pay 2.05 percent plus the return on a ten-year Treasury note, with a cap of 8.5 percent, while graduate students pay 3.6 percent plus the T-bill rate, with a cap of 9.5 percent.⁸⁷ This caused rates on direct loans for undergraduates to increase from 3.4 percent to 3.86 percent in 2013–14 and again to 4.66 percent in 2014–15, and depending on T-bill rates in the future they could reach new highs.⁸⁸ Because rates are still locked in at the time they are taken out, borrowers having different rates depending on when they took out loans will continue to be an issue.

At best, recent legislation on student loans is mixed. IBR and PAYE will help to reduce the burden of monthly payments for those with large loans relative to their income, and avoid default. However, it still means those who can least afford to pay their loans will end up paying more over the life of the loan. None of the proposals on offer from Congress or the White House come close to addressing the heart of the problem, which is the debt financing of higher education in the first place. Even Elizabeth Warren’s proposal, the Bank on Students Emergency Loan Refinancing Act, which Republicans blocked in the fall of 2014 and dismissed as a proposal from the “hard left,” maintains the central role of student loans. Warren’s act would reduce interest payments on outstanding student-loan debt to below 4 percent, paid for by a tax on millionaires.⁸⁹ While Warren’s bill is a step forward compared to what is on offer from most of the political mainstream, it represents a quantitative change where a qualitative leap is needed.

Caps on student loans at colleges and universities
Some colleges and universities have taken steps to address the student-loan crisis at the institutional level, with a range of programs that cap or eliminate loans for students from families with income below a certain threshold.⁹⁰ However, these programs are mostly limited to elite colleges and universities, which only serve a small portion of students and disproportionately serve the wealthy: of the top 146 colleges, nearly three-quarters of students come from the richest 20 percent of households.⁹¹ So, these efforts represent a drop in the bucket in the face of the student-loan crisis. In addition, these programs are highly unlikely to catch on at for-profit colleges, a huge source of student indebtedness.

The priorities of the university system are skewed to benefit chiefly those students already in a financial position to avoid needing student loans to make it through college. According to the National Association of State Student Grant and Aid Programs, “hundreds of thousands of U.S. students from well-off families [are] awarded public dollars in the form of merit-based state scholarships—all based on grades and test scores, not on whether or not they need the money.”⁹²

Is college worth it?
A Google search of the phrase “is college worth it?” will turn up a whole slew of articles in major media outlets—from TIME magazine to the New York Post to U.S. News and World Report—asking whether a college degree still pays off, given the high cost of college and increased burden of student loans. It goes without saying that this question is not addressed to economic elites. The children of the wealthy will always be able to afford college and it is expected that most will attend. Rather, the question is aimed at working-class people and the poor, those who were largely excluded from most institutions of higher education until well into the second half of the twentieth century. The question frames what in essence constitutes a constraint on access to higher education by socially and economically marginalized people.

In truth, student loans are a fairly recent phenomenon. They are the result of specific policies rooted in the contested and changing political and economic landscape of the last few decades, part of a history that is still being written. As such, their future form, even their future existence, is contested today and will be in future. A better question to ask is whether or not it is worth it to use the resources that exist in the broader society—more and more concentrated in the pockets of the richest among us—to provide relief to those bearing the heavy burden of student-loan debt and to make higher education free and accessible to all.

Asking that question requires a more expansive view of the worth of education. It requires replacing the narrow, individualist neoliberal approach that treats higher education as an investment that is only worth it if it “pays off” with one that treats higher education as a public right. It requires demanding a society that uses its resources to ensure not just that the next generation of workers receive the training they need to carry on the processes of production and social reproduction, or even to participate effectively in civic life, but that they have access to institutions that support learning for the sake of human development.

At $1.3 trillion, the total amount of outstanding student-loan debt is far from insignificant. But in the United States, the richest country in the world, it is entirely within in the realm of fiscal possibility to write off all existing student-loan debt—to enact a “student-loan jubilee”—and also to eliminate the need for future loans by making public higher education free. 

According to Bob Samuels at UCLA, to make public higher education free for all in 2009–10—covering all tuition, fees, room, and board for undergraduates at all public two- and four-year colleges—would have cost $127 billion.⁹³ About three-quarters of all students enrolled in higher education attend public institutions⁹⁴ and about two-thirds of high-school students go on to pursue higher education.⁹⁵ So, even if most of those who would have otherwise attended a private nonprofit or for-profit institution switched to a public college or university, and there was a significant increase in college attendance among those not currently enrolled, making higher education free to all who choose to attend should not cost much more than $250 billion per year. 

The problem isn’t one of resources or funds, but of priorities. In a country where upward of $3 trillion has been spent on occupying Afghanistan and Iraq and where the 2015 military budget is more than half a trillion dollars,⁹⁶ where the top 160,000 families are worth more than $20 million each,⁹⁷ and where corporations hold more than $2 trillion overseas to avoid domestic taxes,⁹⁸ the resources clearly exist to provide free higher education. Moreover, as the GI Bill shows, there is historical precedent for a massive grant-funded expansion of access to higher education.⁹⁹ However, creating the political will to abolish student-loan debt and make higher education free for all will take much more than pointing out that the United States can afford to do it. This will require embedding the demand for free higher education and the debt jubilee within broader struggles to reverse the very trends that led to the rise of the student-debt crisis in the first place. Those challenging economic inequality, racial injustice, and other forms of oppression should make universal access to higher education part of their vision of a more just society, and those fighting for an end to student debt must connect with broader layers of people in order to build the kind of mass movements it will take to win their demands.

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