July, 2018
Washington -- As the nation's student loan crisis grows, more and more writers, many of them insightful, are offering their analyses and opinions as to how we got into the current mess.
Typically, they point to a withdrawal of state tax support for public institutions, forcing both tuition and borrowing higher. Many also blame federal loan programs themselves, believing that when money is easily available, prices go up.
There are elements of truth to these explanations, but let me offer two others that I think have been woefully neglected and will have to be addressed if the situation is ever to be successfully addressed.
The first explanation is that Congress chose to fund programs that failed to account for state and institutional behavior in reaction to them. It did not start out that way with the Higher Education Act of 1965, which required institutional or state matching funds as a condition of participating in federal student aid programs. But within a decade, Congress began instead to favor Pell Grants and Stafford Loans, which had no such requirements, and by the 1980s the original HEA programs were an afterthought. The rest is history. States and institutions, almost invited by Congress to do so, made college affordability a low priority. Congress had handcuffed itself by failing to employ the tools of fiscal federalism available to it under the original HEA. This was totally predictable and, in fact, was predicted by some of us in the 1980s and onward.
The second explanation, incredibly important, is the rise of for-profit industries in postsecondary education, encompassing both student loan entities and for-profit schools. As originally set up, management of the student loan industry was through either state or non-profit organizations. That changed in the 1990s with the privatization of Sallie Mae and the conversion of state secondary markets to for-profit status. Also in the 1990s, when for-profit schools started to offer stock to investors on Wall Street, they became a potent lobbying force throughout the government. Soon, the Department of Education was staffed at high levels with individuals who moved easily though the revolving door between for-profit interests and government.
The way for entrepreneurs to make money in higher education was through student loans, the more the better. Many people got rich by turning a blind eye to what was happening to higher education affordability, shutting out the the interests of students, families, and taxpayers. Many officials and executives in both industry and government cut corners and acted illegally, most with impunity.
There is ample blame to go around. The responsibility is bi-partisan. The solution to the current crisis is to return to the foundations of the HEA; that is, to take state and institutional behavior into account in all programs, and to lock and bar the revolving door between industry and government.
