A Look Into the History of Student Loans
- August 15, 2016
- Posted by: Jeff Gitlen
- Category: Student Loans
Just about everyone has heard about student loans. They are constantly mentioned in the news—often with much scrutiny and, more often than not, in a negative light.
While it would be nice to attend college for free or without having to take on debt, the truth is that student loans are often necessary for those looking to obtain a higher education - especially considering the rate of increase in average college tuition.
At the end of the day, student loans allow aspiring young minds to attend college, thereby unlocking opportunities that would have never previously existed.
When scholarships, grants, and savings aren't enough, students around the nation turn to student loans to bridge the gap.
Though many people know about student loans, nearly no one knows about how they started and how they’ve reached the level of popularity that they are at today.
This article will go through the major events and bills that paved the way for our nation’s modern student loan programs.
A Timeline of the History of Student Loans
1840: The first student loans are offered to students attending Harvard University in 1840.
1867: The United States Department of Education is formed to help make schools more successful, but does not yet have a student loan program.
1944: The GI Bill passes, allowing World War II veterans to attend college for free or for very cheap. In subsequent years, veterans would account for nearly half of those attending college.
1958: Federal student loans are first offered under the National Defense Education Act to help the United States compete with other countries—namely the Soviet Union. High school students who showed promise in mathematics, science, engineering, and foreign language, or those who wanted to be teachers, were offered grants, scholarships, and loans.
1965: The Higher Education Act is established to provide “Educational Opportunity Grants” to colleges recruiting students with considerable financial need. The Guaranteed Student Loan Program, also known as the Federal Family Education Loan Program or FFELP, allows banks and private institutions to provide government subsidized and guaranteed loans to students.
1966: The National Association of Financial Aid Administrators is created to monitor financial aid throughout the nation.
1972: The Basic Educational Opportunity Grant, what would come to be called the Pell Grant, is created to help needy students attend college.
1992: The Higher Education Amendments of 1992 create FAFSA, the Direct Lending program, and unsubsidized Stafford loans.
1993: The Student Loan Reform Act officially implements the Direct Lending program. Under this program, the government directly lends to borrowers, as opposed to through a private institution.
2005: The Higher Education Reconciliation Act reduces loan fees from 4% to 1% and allows graduate students to take out PLUS Loans.
2008: Credit market problems cause many private lenders to back out of FFELP as they cannot provide loans to students.
2010: Legislation proposed under the Obama administration eliminates the FFELP and requires all new federal loans to be Direct Loans. Private lenders begin offering private student loans to students independently from the government.
2012: Total amount of student loan debt passes $1 trillion.
As you can see, student loans have gone through quite the evolution over the past 176 years. While it’s difficult to project what will happen in the coming years, it would not be surprising to see more change. Regardless of the changes that have already happened, and those that will in the future, one thing remains the same: student loans continue help millions of young adults attend college to gain the knowledge that allows them to purse their passions and take part in opportunities that would otherwise be unreachable.