How a well-meaning program trapped millions of dollars in debt
THE DEBT TRAP
How student loans became a national disaster
By Josh Mitchell
On the day the Russians launched Sputnik in 1957, Lyndon Johnson, then Senate Majority Leader, was hosting a dinner party at his ranch outside of Austin. As the evening settled in and the stars appeared, Johnson and his guests gathered outside to gaze skyward, hoping to spot the first satellite in orbit. Sputnik had taken the world by surprise and to Johnson it was a wake-up call, a shocking realization that another nation could eventually dominate the United States technologically. Congress should do something, quickly.
The solution, Johnson thought, was simple: America had to become a more educated country. Johnson grew up in poverty, went to college on loans, and knew firsthand that a degree could lift people out of poverty. Gaining access to university would lead to two wars at the same time, the Cold War and, when he became president, his war on poverty. What he couldn’t know was that this drive to increase attendance would grossly enrich banks and universities while throwing students into life-shattering debt, creating what Josh Mitchell, in his story of the student loan crisis, “The Debt Trap,” calls it a monster. “
Mitchell’s Monster is the student loan industry, including the banks, private companies, and government agencies that organize the funding, as well as the colleges that take the money. Today we see the trail of destruction that this monster left behind. One million borrowers owe over $ 200,000 each in student loans, and the total amount of student debt held by the federal government, $ 1.6 trillion, is roughly equal to Canada’s gross domestic product. While university endowments reach billions, thousands are lacking every day.
How did it happen? Johnson pushed Congress to make the college more accessible. Initially, some proposed a hybrid loan and scholarship system, in which the first two years of college would be essentially free for students. But federally backed scholarships would increase the deficit, which was untenable during the years of the Vietnam War. Additionally, many politicians argued that the idea smacked of socialism. The loans were a more individual, more American solution. The burden of paying for college, Mitchell tells us, fell primarily on students, not on society.