Soaring tuition fees and the history of student loans

Senator Bernie Sanders recently launched a controversial federal plan to make public universities and community colleges free. Sanders also wants to eliminate student loan debt and pay it off with an ambiguously defined tax on Wall Street. Western universities have been around in the modern sense for about 1,000 years. Until the last 50-100 of those years, the role of central governments in tuition fees was minimal. In 1240, an Englishman named Robert Grosseteste started a student loan company called St Frideswide’s Chest. It was essentially a pawnshop where students used gold, silver, and textbooks as collateral for their tuition fees. In 1643, wealthy donors to Harvard University founded the first scholarship endowment. In 1838, Harvard established an interest-free loan agency for low-income students. It was a successful endeavor, as other Ivy League schools followed suit.

Federal involvement in higher education began with the GI Bill in 1944, rewarding military service with subsidized education. The National Defense Education Act of 1958 provided the first federal student loans to those pursuing studies in fields related to national security. The most significant changes came with the Higher Education Act of 1965. This legislation guaranteed student loans at the federal level, established the Stafford loans that millions of people receive today, and created Pell scholarships for students. poor and minority students. In 2010, President Obama signed a major reform bill that ended private lending for new student loans, so that all student loans are now issued by the US Department of Education. It also reduced the eligibility period for the student loan exemption from 25 to 20 years for new borrowers. A 2015 Federal Reserve report found a significant correlation between federal student aid and rising tuition fees.

School may be out for the summer, but student loan debt these days never takes a break. Student loan debt in the United States reached $ 1,000 billion in April 2012. It is now $ 1.6 trillion, with more than 44 million borrowers owing an average of $ 34,000. According to the Wall Street Journal, “tuition fees have climbed 1375% since 1978, more than four times the headline inflation rate, according to Labor Department data.” As shown in the figure below, in 2003 the average student debt per capita in 50 states was $ 1,135 ($ 1,549 in 2018 dollars) and rose to $ 5,438 in 2018. Student loan defaults in all 50 states changed insignificantly from 2005 to 2011, then rose sharply between 2011 and 2012, from 8.1% to 11.5%, and has stagnated since 2012. The delinquency rate in Florida rose from 14% in 2014 to 9.4% in 2017, then rose to 13.7% in 2018.

(Each of these numbers includes an average of 50 states and the six largest states in terms of population.)

Despite the still exorbitant rise in tuition fees, American universities remain among the best college institutions in the world. I have been studying at the University of Iowa for three semesters now. During this time, I took International Conflict with a leading researcher in the field, Sara McLaughlin Mitchell, who co-authored one of the course manuals. Last semester, I discovered Southeast Asia through Ronald McMullen, a former US Ambassador who served as a diplomat for 30 years.

Such exceptional learning experiences have made America the number one destination for international students, with nearly 1.1 million foreigners enrolled in 2018. The second and third countries on this list, China and the United Kingdom respectively, numbered only about half a million each. In the 2018 fall semester, 9.3% of the 33,000 students at the University of Iowa were from overseas. Of these 3,056 international students, 57.9% are Chinese. Most international students pay full tuition fees out of state, subsidizing the education of state residents like me. The estimated out-of-state tuition in Iowa for the upcoming school year is $ 31,793, with in-state tuition fees of $ 9,380. Tuition fees in other public schools are similar, usually within a range of $ 4,000 (that in California is higher). Most of Iowa’s international students, especially the Chinese, are relatively wealthy and make significant contributions to our economy. I know this firsthand because on more than one occasion I’ve been a few minutes late for class after lingering in the library parking lot, drooling over Porsches and Mercedes that a lot of between them lead.

Maybe Bernie Sanders is right that public universities should be free, but Americans would be wise to examine what makes these universities so attractive to foreigners before making any drastic changes to the way the whole set. system is funded. The anniversary of the independence of our magnificent country is an excellent moment of citizen reflection. At Truth in Accounting, we hope lawmakers and the citizens who choose them will make policy decisions based on prudence and empiricism. That’s why our staff work so hard to keep the State Data Lab up to date with countless statistics on the federal government, the 50 states, and 75 of America’s largest cities. Anyway, happy birthday America early!

Jason O’Day is an online marketing and social media intern at Truth in Accounting, a Chicago-based nonprofit that studies government financial data.

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