A lot of the problems that SAVE tries to correct can be traced back to a law that most history textbooks celebrate. The 1965 Higher Education Act appeared, on its face, to be a major investment in higher education, which, up to that point, had been largely under the control of states, religious groups, and wealthy donors; some campuses still bear the latter’s names, like Andrew Carnegie, Andrew Mellon, and Leland Stanford. The law did, in fact, devote money to campuses and their libraries; it also included provisions for grants, work-study options, and student loans. In signing the bill, President Lyndon Johnson seemed to be promising all Americans a path to college: “Education is no longer a luxury,” he insisted. “Education in this day and age is a necessity.”
At the time, student loans seemed really risky. A banker cannot repossess and sell a student’s credit hours or degrees to someone else. But the Guaranteed Student Loan Program assured lenders they would be repaid. The country was in the midst of building a Great Society while waging a War on Poverty at home and fighting communism abroad. All that was expensive. Better to use tuition revenue—not taxpayer money—to pay for the new dorms, classrooms, and campuses required to educate all those Boomers. And looking out for bankers had worked out well before. The federal mortgage program and its guarantee for lenders had turned a country of renters into a nation of homeowners without a costly public housing program. Student lending was going to be as safe as borrowing for a house.
Everyone would surely benefit. Alumni would have ten years to pay back banks with interest. Congress would set the interest rate so that it would be relatively low. At the time, it was 6 percent—slightly less than the federal mortgage rate. The Civil Rights Act, passed the year before, stipulated that federal funding could not go to institutions that discriminated on the basis of race, sex, religion, or country of origin. In a booming economy, graduates of all races would obviously find jobs. Inequality was destined to vanish.
But guaranteed student loans, like the mortgage program that inspired them, actually worsened inequality. With the Higher Education Act, lawmakers asked low-income Americans to spend more, over time, for the same degrees that wealthier families could pay for out of pocket. Instead of appropriating enough direct funding to universities to keep tuition low, Congress instead focused on “assisting” students—which left them holding the bill. Even if financial aid officers gave a student one of the federal grants, that scholarship wasn’t enough to cover all college costs.