A secretary wanting a better life takes out 16 different loans to become a psychologist with a principal of $95,000 that grows to $120,604 by the time she gets a job. A navy veteran makes it to Howard, his dream school, but his $100,000 debt delays his ability to start a family or save for retirement into his 30s. Without exception each chapter of Josh Mitchell’s The Debt Trap, a new book about the American student loan crisis, begins with an anecdote about an individual. Mostly these individuals are students and parents seeking a form of economic advancement via a college degree, though some are politicians, bank executives, and federal investigators. The goal of this approach is clear: to put individual stories to the $1.7 trillion chasm of education debt in the United States, a debt so large that if it were a nation’s GDP, it would be the ninth largest economy in the world.
The book’s individual stories capture how the ethereal fantasy of social mobility through higher education leads to a growing sense of disillusionment with public and quasi-public systems. Tressie McMillan Cottom has called this fantasy the education gospel. For her, the education gospel, buoyed by belief in meritocracy, credentialism, and the upward mobility afforded by a college education, is what allows for the perpetuation of inequality within America’s system of higher education, and for many entities—for-profit universities, private lenders, elite higher ed institutions—to profit from that very inequality. Cottom’s focus in her book Lower Ed is the for-profit institutions that actively recruit high-risk students—poor people, people of color, women, the unemployed—otherwise excluded from the postsecondary system. She shows how the federally-backed and private loans these students take on are transformed into wealth for higher education companies but result in little advantage or education for students.
For-profit institutions feature prominently within Mitchell’s book as well, but he also outlines how non-profit institutions have not been isolated from these forms of predation. Instead, many invested in it. Harvard and other Ivy League endowments had significant holdings in Sallie Mae—the now privately held debt servicer and originator that got its start as a government sponsored enterprise to guarantee student loans—and also owned shares in for-profit colleges. These elite institutions secure revenue from students they enroll and investment income from those that they refuse to enroll. Along with recent stories about the avaricious character of Master’s programs at Columbia University and University of Chicago, these details further enforce Cottom’s suggestion that the most prestigious colleges and universities, not to mention their most prestigious programs, could not exist without the least. Student loans provide a critical capital flow that unites an otherwise heterogeneous system of higher education in the United States.
In The Debt Trap disillusionment quickly turns to ressentiment, though some feels more justified than others. Ed Fox was the first chief executive of Sallie Mae, the government-sponsored enterprise created in 1972 to purchase, guarantee, and service student loans from banks for the Guaranteed Student Loan program. Fox consistently lobbied Congress for greater assurances on profits, even securing an interest rate of 3.5% to be paid by the government on Sallie Mae’s borrowing costs. This created a margin of profit twice that of the average loan held at a traditional bank. Fox offers a candid assessment of the student loan system in an interview with Mitchell in the book’s conclusion: “If you’re looking at the broader overview, it was a big fuckup…Eventually you wind up with $75,000 tuitions at institutions that have $40 billion in reserves.” Even the early architects of this system are surprised by what it has become.
In making the student debt crisis a story about individuals, Mitchell foregrounds that the system was set up via choices about policy motivated in large part by greed. Banks relentlessly pursue easy profits. Lawmakers extend the promise of free money despite its risk for their electoral benefit. They also use student loan debt as an accounting instrument for the federal budget for their ideological advantage; sometimes to offload state debts and other times to generate revenues for other federal programs. University administrators look to spend every taxpayer-dollar from the system they can. Professors even get into the mix by demanding higher salaries. Greed is a familiar desire and certainly one that alludes to capitalism’s most recognizable and most rewarded sin.
The problem is that greed is not a systemic explanation, and the desire to see it everywhere also clouds the book’s analysis. Despite Mitchell’s claims, university faculty have not particularly benefited from the infusion of cash through student loans. Average faculty salaries have basically stagnated since 1970, like those of most other American workers. Full-time faculty positions with tenure have also steadily eroded, leaving more and more contingent, part-time, low-paying adjunct jobs. Centering the story on greed and the individuals driven by it masks political and economic philosophies that makes student debt seem the sole reasonable solution to the problem of funding mass education.
The resulting account simplifies the antagonists behind the cost of college. If the government turns on the spigot of unrestricted financial aid for students in the form of loans and grants, then colleges will keep raising their prices to absorb as much as possible. The thesis that federal aid begets higher tuition prices debuted in a 1987 New York Times column, “Our Greedy Colleges” by Bill Bennett. Bennett was the Secretary of Education in the Reagan administration, and his column responds to runaway tuition increases that far outpaced inflation. Mitchell’s book at times more or less endorses Bennett’s thesis, along with the related idea that because university budgets are so dominated by labor costs, price increases can inevitably be traced to higher wages.
That high wages lead directly to price increases is an idea that seems to fall out of the mouths of central bankers, and we hear it frequently in past and present anxiety about inflation. But Tim Barker reminds us, there have been other ways to deal with an inflationary cycle, including federal price control measures. Another measure might be scrutinizing budgets. In a 1945 strike negotiation, the UAW led by Walter Reuther demanded to “see [GM’s] books” when the automaker refused to accede to the demand that a UAW wage increase not lead to an increase in the cost of cars. While the profit- or surplus-incentive of university budgeting is distinct from that of GM, it nevertheless remains the case that without a more transparent picture of university budgeting the sources of cost increases remain somewhat opaque. That doesn’t mean there aren’t better or additional places to look, including the cost of debt service on institutional debt, which is often leveraged by the promise of incoming tuition, and administrative bloat.
The argument about the unwieldy spending of colleges, not to mention the faculty desire for more money, however, largely predates the massive growth of student loan programs. One need only turn to Ronald Reagan’s executive stint as Governor of California to find this playbook. Reagan made reining in the University of California system one of his highest priorities in the 1966 gubernatorial election. At the time, the UC system was tuition-free for in-state students and a growing center of left dissent. In step with the logic of economists Milton Friedman and James Buchanan, Reagan wielded increased student fees as a disciplinary mechanism designed to crush leftist movements on campus and to instill in students a feeling of responsibility for the cost of their education. Upon entering office, Reagan sought to slash all state budgets by 10%. He consistently vetoed UC and California State Colleges line items for faculty salary increases.
Reagan’s “solution” to the cuts he had made was to leverage his position as a regent ex officio to call for tuition to make up the gap in funding. As accounts of this struggle by Melinda Cooper and Jennifer Nations reveal, Reagan got his way except in name. Instead of a tuition payment, the University of California initiated an “administrative fee” of $300 on students for the first time, a fee that would grow four-fold by 1982. A slightly different version of this struggle unfolded in the mid-1970s at CUNY during New York City’s fiscal crisis: the result was the end of open admissions and the imposition of new tuition fees within the system. CUNY’s problems had little to do with faculty wages—the system was relying significantly on adjunct labor as it worked to adjust to the rapid growth that came with its 1970 open admissions policy.
The California and New York examples show how austerity shaped by racist and anti-Left panic created the conditions for the imposition of tuition. In the California example especially, the need for budget cuts was entirely invented. (Economists, by the way, have gamed out both the Bennett hypothesis and the thesis that decreases in state-subsidy lead to tuition increases. They have found that both have some small effect on tuition but that it is too complicated to draw any sort of causation for either.) Connecting federal funding for higher education to students via the instrument of tuition thus has little to do with the rising cost of college; rather, it was a deliberate strategy that relied on an increasing American belief in an individual’s responsibility for investing in their own human capital. This belief is often referred to as neoliberal and it relies on a particular vision of the function of the state and the market, the role of education, and the very existence of society beyond the individual and family.
Mitchell does acknowledge one moment when postsecondary institutions and some state officials saw this as a potential problem and encouraged the federal government to see it otherwise. In 1969, Alice Rivlin, the assistant secretary of the Department of Health, Education, and Welfare, assembled a panel to develop a federal plan for funding higher education. The government needed to choose a path forward: either provide aid directly to students via grants and loans or give direct institutional aid to colleges and universities. Rivlin laid out the possibilities of these methods clearly:
Those who believe that we should be moving toward free higher education for all (just as we have free elementary and secondary education) might favor increased Federal institutional aid as a step in this direction. Those who believe that the beneficiaries of higher education should continue to bear part of the cost through tuition would tend to favor emphasis on student aid to needy students and an improved loan market for all students.
Rivlin’s panel, like the federal government, chose rising tuitions and the individual loans that came with it over free education. Rivlin’s justification largely tracked a typical hesitancy to universal government entitlements: wealthy people appear to benefit more than poor people from direct subsidy of higher education. History proves this wrong time and again. But it hasn’t stopped the Biden administration in deploying this argument to justify their steady refusal to cancel student debt, even while empirical research suggests that Biden’s argument is wrong.
There are a number of reasons that directly subsidizing higher education classrooms failed to catch on throughout the mid-century, most of them having to do with anti-Communism. Mitchell starts the student loan story with the National Defense Education Act of 1958, an act that was a Cold War response to the Soviet Sputnik launch. The NDEA effectively expanded G.I. Bill benefits to civilians, though it required that beneficiaries swear a loyalty oath to the United States. Two years of free higher education, however, had been publicly called for more than a decade earlier by the George Zook-led Truman Commission on Higher Education. The persistence of a demand for free college of some form at the national level highlights the struggle of the draw-down of the New Deal and the military Keynesianism of World War II. In addition to the racist and anti-Communist dimensions that bolstered the Cold War consensus was the creation of a patchwork public-private social safety net that was won by and for unionized workers, but not necessarily for others. The period in which tuition and student aid and loans came to be hegemonic also was the period in which private labor markets came to be the major point of access to health care protections and other benefits. The U.S. solution to the provisioning of various necessary social services, including education, thus came to take an unwieldy public-private form. This form allowed for the downward redistribution of wealth via individuals and families, but it could later be repurposed for the downward redistributions of risk to individuals and families. Wealthier people, who had less of a need for subsidies for these services, could avoid the costly risk shift. These systems expanded to provide new forms of provisional inclusion in the wake of federal anti-discrimination laws, yet as Keeanga-Yamahtta Taylor has illustrated in terms of housing and real estate policy in the early 70s, inclusion could very well be predatory. Student loans were no exception to this, as Louise Seamster and Raphaël Charron-Chénier have discussed the system’s “predatory inclusion,” in which “black households accumulate larger amounts of student debt relative to white households, with little gains in terms of educational attainment.”
A fear of socialism—both in terms of dislodging the individual as the unit of U.S. governmentality and in terms of the figure of greedy, leftist professors—came to support the creation of a system that relied on cost increases for its continued existence. Legislation for student loans only made the system more punitive and more exploitative over time for an increasingly diverse set of students and more profitable and more secure for banks and colleges. Mitchell’s book offers example after example of lawmakers recognizing that the loan program saddled people with debt that they would not be able to repay, but refusing to consider alternatives for fear of restricting access to college for more constituents. Contrary to longstanding federal logic, student aid in the forms of loans have only ever been nominally about widespread access. Practically, such policies, like impossible standards for discharging education debt in bankruptcy, insist that the indebted pay the price of education at any cost.
What The Debt Trap gets right is how the system for student aid in the United States structurally advantages every party involved except for the students going into debt. Moreover, Mitchell shows in careful detail how this was not an accident of the system, but part of its central design. He highlights how a widespread belief in college as part of the American dream stands as an ongoing justification for the expansion of the system, despite long-range awareness of how the neediest students have long been at highest risk of being saddled with massive amounts of debt from which they cannot even escape in bankruptcy. Universities are certainly not defensible in this scheme, but there is on Mitchell’s part and the lenders and lawmakers he attends to a seemingly wildly out of character ideal applied to these institutions. Of course, universities will spend as many dollars as they take in: what institution under capitalism does not? Capital must move to have value. Extravagant spending by universities on labor costs as a catalyst of this cycle is a talking point that belies a foundation in need of questioning. This foundation cements widespread fear of the accrual of power for working-class people and Black people and a political economic consensus that insists on the formation of individuals via discipline and risk-bearing. These may appear to be a set of distant ideals floating above a massive sum, yet the student debt crisis reveals these ideals to have a material basis in linked political economic struggles in the United States. The outline of a horizon of different means for funding higher education lights a battleground that, if taken seriously would bring into focus the myriad factors animating the student debt/tuition solution for funding higher education.