The Federal Government Has Long Made the Cost of Higher Ed Worse, Not Better

Everyone knows the cost of higher education in America is massive and unsustainable. The federal government has played a key role in inflating college costs — but any president, including Joe Biden, could easily change that while wiping out student debt.

While the federal student debt crisis is relatively recent, the struggle to finance education is not. (Stefani Reynolds / AFP via Getty Images)

Today nearly 45 million people owe $1.9 trillion of student debt. This debt does not impact everyone equally. Two-thirds of all student debt is held by women; the heaviest burdens are held by women of color. Twenty years after graduating, on average, white borrowers have paid off nearly all of their student debt, whereas black borrowers are still stuck with almost the same amount they started with. Yet debt drags down the lives of everyone who has to take it on.

As Representative Ayanna Pressley has said, student debt is more than a policy failure — it is a form of policy violence. Study after study confirms that debt-financed higher education, far from being a great equalizer providing opportunity and access to all, is a severe driver of inequality.

In her new book, Indentured Students, Elizabeth Tandy Shermer, a historian of US capitalism, explores the history of this policy violence. What most of us think of as the student debt crisis only really emerged after the baby boomer generation graduated from college. Shermer reminds us that Americans have always been hungry for more education, but that education has always been more expensive than we could afford. While the federal student debt crisis is relatively recent, the struggle to finance education is not.

Tuition Goes Up, Up, Up

Before federal student loans existed, universities themselves often acted as lenders to their own students, and default rates were high. In the 1920s, for example, 25 percent of all student loans defaulted. The oldest American universities in the northeast excluded African Americans as well as Jews, Catholics, and most women (some schools had very limited quotas). One recurring theme of Indentured Students is that whenever an excluded class was finally admitted to higher education, as happened when work-study expanded access to some working-class students or when the GI Bill allowed soldiers (many without high-school diplomas) to enroll, administrators were surprised to see these previously “unfit” students do incredibly well.

At several points, Shermer shows that the popular collective memory of events is a species of false memory. The New Deal is often thought of as the high-water mark of government intervention. It was also a patchwork of public-private partnerships, many of the sort that wouldn’t have been out of place in the neoliberal Clinton administration. Work-study — a quintessentially public-private partnership — had its origins as part of the New Deal.

One of the most fascinating characters Shermer profiles is Aubrey Williams, who headed the National Youth Administration, a New Deal–era program that helped create the work-study program. Williams was a white Southerner who grew up in the slums of Alabama to become a political radical hell-bent on making sure the New Deal reached black students — an effort that was often frustrated.

Work-study served multiple functions. Tying benefits to work shielded criticism of funding college as a “free ride” and helped cement the meritocratic ideal of “working your way through college.” Most students found the work valuable in and of itself, as well as educational. Williams had to navigate a government in which segregationists had significant power and weaponized supposedly color-blind policies that just so happened to leave out black people. He responded by creating a special fund that he controlled and could direct to black students. Williams also forced schools to enroll a diverse student body before he allowed those students to apply for work-study, threatened to investigate discrimination, and fought for additional state funding for historically black colleges and universities.

Despite Williams’s earnest attempts, the benefits of work-study still went overwhelmingly to white students, and Shermer argues it unintentionally drove up both tuition (by as much as 60 percent between 1932 and 1940) and inequality.

This is because there is a feedback loop between increased indirect federal funding and the tuition schools charge. This is sometimes referred to as the Bennett Hypothesis, named after Bill Bennett, Ronald Reagan’s secretary of education. Shermer shows it was a well-known dynamic that many people warned about long before Bennett. As funding for work-study (and the GI Bill, Pell Grants, and student loans) increased, university administrators raised tuition to soak up the available funds. Those who initially benefited from the increased funding didn’t feel the pinch, but everyone who came after did.

The key thing to understand is that this feedback loop only happens when the funding is indirect. Direct funding of universities would help lower and control costs.

Or consider the GI Bill, commonly regarded as one of the most successful social programs in US history. Shermer shows that the GI Bill was a bureaucratic mess and a nightmare to navigate. It was also highly wasteful, with nearly one-third of all GI Bill funding swallowed up by predatory for-profit colleges and diploma mills, an industry that exploded as a direct result of the GI Bill’s passage.

Although the GI Bill was generous enough to cover even the most expensive tuition at schools like Harvard, it did not provide enough funds for students to live on, and 25 percent of recipients ended up dropping out of college because they simply could not make ends meet. The benefits were almost exclusively reserved for white men. Meanwhile, tuition rose for everyone else, once again worsening inequality. Rising tuition set the stage for federal student loans.

Our Higher-Ed Rube Goldberg Machine

One oft-repeated story about the history of student debt is that the Soviet Union’s launch of Sputnik into space scared the United States into a massive investment in higher education. It is true that the Soviets were educating more scientists and engineers than the United States, and fully funding their education. But Shermer demolishes the myth that the United States responded with a proportional investment in education. After some initial Cold War–inspired fervor, the funding proposals got whittled down, and the educational component of the space race was half-hearted and piecemeal at best.

The one lingering legacy from this policy was the invention of federal student loans. These loans were supposed to be a temporary emergency measure. Sixty-four years later, federal student loans have created an emergency of their own.

You also can’t understand higher-education finance without understanding the tax code. Barry Goldwater initially floated the idea of issuing tax credits to offset the cost of education instead of directly funding universities. Goldwater wanted tax credits because they would be a highly regressive way to both fund higher education for the wealthy and to cut revenue for Great Society–era projects.

Shermer points out that the Reagan tax cuts for the rich were so big that they more than offset the cost of college tuition. Thus, Reagan effectively gave free tuition to students from wealthy families.

At the same time, he cut federal funding to higher education by 25 percent in his first term, disproportionately harming poor and working-class students. Universities responded by raising tuition. Both Bill Clinton and Barack Obama continued to push tax credits.

The way we finance higher education in the United States is a Rube Goldberg machine that has been successively retrofitted and expanded over the years. At times, Shermer gives an almost play-by-play account of how this machine was constructed.

For example, during all-night negotiations between the Senate and House in 1972 to reconcile differences on education legislation covering everything from school busing to complicated formulas for allocating Pell Grants, one conference committee member tried to sabotage the proceedings — but lacked the votes to do so because another member just happened to leave the room at that moment to get a glass of water. Pell Grants are aimed at students who demonstrate financial need, and the issue was whether or not some funding would be awarded to colleges based on the number of Pell Grant recipients they enrolled, thereby incentivizing enrollment of lower-income students.

The famous trailer for Dr. Strangelove includes the line, “How does the fate of the world hang on a Coca-Cola machine?” The history of US educational policy, it turns out, is just as strange, with the fate of Pell Grants as we know them contingent on that glass of water.

The Solution Isn’t Difficult

An overarching diagnosis emerges. Viewed as a purely practical and financial problem, the solution to the student debt crisis is painfully simple. We must directly and fully fund public universities, as plenty of other countries with smaller GDPs than ours do, thereby enabling students to get a high-quality education without taking on a penny of debt.

In the United States, we provide inadequate direct funding to universities, and the rest of the funding is provided indirectly by funding students through a complicated patchwork of grants, tax credits, work-study, and ever-ballooning student loans. In essence, we have a kind of voucher system for funding students’ higher education — and that is the problem.

Why do we do it this way? There are many factors, but if we had to single out just one, Shermer makes a persuasive case that student debt is a legacy of segregation. For decades, university administrators themselves opposed direct federal funding because they knew it would come with strings attached, namely the requirement to end segregation in admissions. Often masquerading as “academic freedom,” it forced a compromise where the universities would have complete control over admissions, and the federal funding would arrive indirectly by providing funding to the students who in turn pay tuition.

It might seem counterintuitive that universities themselves have historically been resistant to federal funding. What administrators wouldn’t want more funding? But just last year, one of the first casualties of Joe Biden’s doomed Build Back Better initiative was fully funding community colleges to make them free to attend. This happened as a result of intense lobbying from four-year universities.

Instead of seeing free community college as a down payment that would eventually lead to a fully funded system of free education across all public institutions, four-year universities viewed a public option in higher education as an existential threat that had to be destroyed.

Universities are under tight pressures and can’t afford to lose students, or the federal funding attached to them, with the option of a debt-free community college education. Instead, universities lobbied for increased Pell Grants, increases that many worry will just be eaten by universities through increased tuition. Such machinations are depressingly common at various points in Shermer’s history.

Our current sorry state of affairs wouldn’t come as a surprise to George Zook, who functions as a bit of a Cassandra figure in Indentured Students. As a university administrator in the 1920s, Zook opposed direct federal funding. But by the time he headed Harry’s Truman’s Presidential Commission on Higher Education, he dramatically changed his mind.

In 1948, the Zook Commission recommended that the federal government directly fund two years of college for all, and included dire warnings for what would happen if we didn’t: “Education may become the means, not of eliminating race and class distinctions, but deepening and solidifying them.” From today’s vantage point, the Zook report looks remarkably prescient. Direct funding of universities remains the only practical solution.

It might seem counterintuitive at first, but increasing the direct funding of universities (and eliminating the indirect funding like student loans) is also the best way to control costs. By eliminating tuition and picking up the bill entirely, we can restrict funding to what really matters, like instruction and research and worker pay, and not bloated salaries for top administrators or vanity building projects.

Get Rid of All of It

The history Shermer paints is one of paralysis baked into American governance itself, one that is highly resistant to passing real solutions despite changes in Washington’s partisan makeup or shifting political alliances. Although the practical solutions are simple and affordable, something on the level of our political form needs to change if we are going to be able to realize these solutions.

In the epilogue, Shermer writes about the burgeoning movement to cancel student debt and win College for All that emerged out of Occupy Wall Street, including direct actions like the student debt strike at the for-profit Corinthian Colleges, Inc. The strike was organized by members of the Debt Collective, a debtors’ union I helped cofound. On several occasions, I heard Ann Larson or Laura Hanna, the two principal organizers of the strike, speculate that historians would one day write about the effort. Now they have.

After seven years of struggle, on June 1, Vice President Kamala Harris announced that all former students at Corinthian College, over half a million people, will be getting 100 percent of their student loans canceled. This is the single largest cancellation of student debt in history.

But it won’t be the last. Today, thanks to tireless grassroots organizing, nearly everyone admits that the status quo is unsustainable — even Joe Biden, who campaigned promising an immediate minimum of $10,000 of student loan cancellation for every borrower (as well as 100 percent cancellation of all undergraduate debt for people who attend public colleges and historically black colleges and universities who make under $125,000, something Biden wants to memory-hole).

Biden can cancel much more than $10,000. Indeed, he can cancel it all with just a signature. The Debt Collective even wrote the executive order for him.

The question for the future is whether or not 45 million student debtors will get organized and realize their power to overcome a recalcitrant White House. Student debt is a form of social control, a way of disciplining people and enforcing a rigid social and economic hierarchy. Fully funded higher education is a dangerous prospect not because it might increase social mobility within that hierarchy but because it could help destroy the hierarchy altogether.

Shermer has done us all a public service by providing a diagnostic history of the student debt crisis. This is a history we can use to dismantle the current system and build a new one.