Over the last decade, student loan debt has moved closer and closer to the front of the national conversation.

Even before the beginning of the COVID-19 pandemic, commentators, politicians, and policy-makers had been raising alarms about the startling rate at which student debt was increasing—which, so far, has peaked at almost $1.7 trillion held by 44 million Americans at the end of 2021. The ongoing coronavirus crisis resulted in one of the largest federal responses to student loans. The CARES Act of 2020 halted the accrual of interest on student loans. This pause of interest saved borrowers an estimated $115 billion by February 2022. But, with the final deadline of the interest pause approaching in May 2022, pressure on President Biden to enact wholesale student loan forgiveness is growing from both the public and politicians.

Clearly, student loan debt is a hot-button topic that has caused an eruption of opinion, policy, and partisanship. How did we get here and what’s next? Read on below to learn about the history of student loan debt and the possible future!

What Happened?

As with most national issues affecting such a wide swath of people, the roots of the student debt crisis extend as far back as the 19th century and involve a bewilderingly large array of programs, governmental departments, policies, laws, and people. Here are some highlights:

• 1840: Harvard University students receive the first private student loans.

• 1867: The U.S. Department of Education is formed to oversee and manage the federal school system—does not yet have a student loan program.

• 1944: The GI Bill passes near the end of World War II, offering free or very cheap college to veterans. In the decade after, veterans made up nearly half of college students.

• 1958: Federal student loans are first offered under the National Defense Education Act to help the United States compete with the Soviet Union. High school students gifted in science, mathematics, and modern foreign languages were offered grants, scholarships, and student loans.

• 1965: The Higher Education Act (HEA) is established to provide “Educational Opportunity Grants” to colleges recruiting students with considerable financial need. The Higher Education Act also establishes the Federal Family Education Loan Program (FFELP), which allows banks and private institutions to provide government-subsidized and guaranteed loans to students.

• 1972: The Pell Grant is created to help in-need students attend college. And the HEA is amended to ensure education programs whose students were receiving financial assistance and student loans did not discriminate based on gender. These two popular programs dramatically increased college attendance rates by providing financial assistance to individuals who previously could not obtain it.
• 1992: The Higher Education Amendments of 1992 creates the Free Application for Federal Student Aid (FAFSA), the Direct Lending program, and unsubsidized Stafford loans. With these loans, students now covered interest costs, rather than the federal government. Up until this point, the federal government was entirely subsidizing student loans. This shift marked the beginning of the modern-day student loan system. 

• 1993: The Student Loan Reform Act implements the Direct Lending program. Under this program, the government can now directly lend to student loan borrowers, instead of through a private institution, which had been the primary student loan system since 1965.

• 2005: The Higher Education Reconciliation Act reduces loan fees from 4% to 1% and allows graduate students to take out PLUS Loans. Outstanding student loan debt is now at $391 billion. 

• 2008: Credit market problems stemming from the Great Recession forces many private lenders to back out of FFELP as they no longer have the financial ability to provide loans to college students. Outstanding student loan debt is now at $639 billion. 

• 2010: Legislation proposed under the Obama administration eliminates FFELP and now requires all new federal student loans to be Direct Loans as part of the Direct Lending Program, which was launched back in 1993. At this time, private lenders begin offering private student loans to students independently from the government. Outstanding student loan debt is now at $811 billion. 

• 2020: Outstanding student loan debt now sits at almost $1.7 trillion. In March 2020, the coronavirus pandemic pushes the federal government to put all federal student loans in pandemic forbearance, which means no payments are required and interest won’t accrue.

• 2021: The newly formed Biden Administration extends pandemic forbearance until October 2021—then renews the extension to May 2022.

Student loans, then, have a nearly 200-year-old history that span much of American history, two world wars, and involve a variety of private and federal organizations. While it’s easy to see the massive amount of debt as a bad thing, though, the reality is not that simple.

Where Are We Now?

With such a complicated history, it’s unsurprising that an easy solution continues to elude Americans about what to do about student loans and debt. This complication is compounded by the fact that the rise of student loan debt has accompanied a massive increase in college education and wages. The Economic Policy Institute found high school graduates made $20.09 per hour on average in 2020; while bachelor’s degree earners made $36.84 and advanced degree holders earned $47.54. Thus, in 2020, receiving a college degree could result in anywhere from an 83% to 137% increase in average wages. So, by and large, student loans are still a worthwhile investment.

Clearly, the long-term benefit of obtaining a post-secondary degree, and the accompanying higher wages, outweighs the cost of acquiring student loan debt. However, as college prices have risen, student borrowers (and their families) are taking on 116% more in student loan debt than they were a decade ago. Receiving a college degree still overwhelmingly pays off in the long run—but rising costs and greater levels of debt for college graduates are complicating a previously straightforward narrative about the value of higher education.

What’s the Future?

This is uncharted territory for many to contemplate. Since the 1940s, the amount of Americans receiving a college degree has steadily increased because of the promise of higher wages and greater class mobility. But now, because of the complex series of factors outlined above—including bureaucratic bloat, rising college costs, a pandemic-hampered economy, and rampant inflation—Americans are looking at a future for the first time in almost a century in which the investment of a college education is being questioned.

There have been a variety of responses by consumers, the government, and colleges. Several major traditional universities have taken steps to rein in costs; the federal government, as stated, has instituted student loan payment freezes and is contemplating loan forgiveness; and many Americans are beginning to look at non-traditional college paths like certificate programs to achieve work experience and licensure.

In these rapidly changing times, colleges have stepped up to offer tuition freezes like ACU Online’s Locked-In Tuition along with more expansive scholarships and financial aid. ACU’s online learning environment is designed with the working adult in mind, allowing students to do coursework while balancing other commitments—a strategy perfectly suited to a world looking for innovative takes on higher education.

So, what are you waiting for? Visit our website or call 855-219-7300 to learn how you can step into the exciting, innovative future of higher education at ACU Online.