Living on Credit: Student Debt in the U.S. History of Knowledge

Borrowing from Bill Clinton’s agenda, German chancellor Gerhard Schröder launched the so-called Hartz reforms to restructure the labor market in the early 2000s. Various German federal states tried to extend these neoliberal measures to the educational sector by implementing tuition in academia. Fortunately, they failed. A nationwide student movement against the economization of higher education particularly opposed the institutionalization of a tuition-student-loan complex. Although successful in defeating this initiative after a few years in Germany, we did not grasp the extent of the problems that student debt caused for so many young people in the U.S. for decades. In this blog post, I will trace the history of tuition and student debt in the United States from about 1950 to the present. For many, higher education became linked to their personal credit histories.

“Everyone was in debt in the mid-1990s,” Ryan told me when I asked him about his student loans and the meaning of credit in his life while I was researching my book on the history of debt in the United States.¹ Rising tuitions in American higher education forced most college and university students to accumulate debt by the time Ryan began to study. “It was the price of freedom,” he told me. When he and his siblings took out their first loans in the early 1990s, they were, in a sense, at the core of a significant development within the history of financialization in the United States shortly after the fall of the Iron Curtain. Risks were securitized and resold as derivatives. As early as the 1970s, credit access had been proposed as a solution to stagnant wages.² This produced immense debt difference (Schuldendifferenz)—a term I use to signify that people are affected differently by their indebtedness. But why did so many students, as private individuals, have to pay such high prices for education and knowledge?

Higher Education’s Credit History

In 1958, the National Defense Education Act introduced the student loan market into education policy after the launch of Sputnik by the Soviet Union the previous year. The act functioned both as a security measure in the Cold War competition and as a door opener for individual education debt. The two sides of the coin—public investment in future human capital and higher education as part of the security apparatus—became core elements of Lyndon B. Johnson’s Great Society when he signed the Higher Education Act (HEA) of 1965. At the same time, it translated the then popular human capital theory into class politics: higher education as a means for social advancement became associated with democratization.³ In a Texas college gym, President Johnson referred to its impact within the social topography: “a high school senior anywhere in this great land of ours can apply to any college or any university in any of the 50 states and not be turned away because his family is poor.”⁴ The well-meaning initiative promoted mass university attendance and invoked emancipation but also opened the door to the marketization of higher education.⁵ Title IV of the HEA contained the federal government’s default guarantees to private lenders and creditors who offered loans to students.⁶ The Guaranteed Student Loan Program (GSL) granted risk protection to private creditors and established an enormous incentive to get private capital into the public infrastructure of education.

At the time of the student protests in California in the mid-1960s, early neoliberals in politics had already come up with ways to strike back against the New Left. Gubernatorial candidate Ronald Reagan countered President Johnson’s Great Society with his Creative Society. In a 1966 campaign speech, Reagan declared that student protests had more to do “with rioting, with anarchy” than with “academic freedom.”⁷ A decisive element of neoliberal debt policy was to force state universities to charge tuition. Reagan linked university costs to property taxes to portray government spending as a counterproductive expropriation for the sake of wayward youth. He leaned into white workers’ racist resentments, as well as into sexism, and mobilized mainstream society’s heteronormativity to discredit inclusion and student protest. In a nutshell, he argued that workers’ children would not enroll in universities, yet it was working-class whites who had to pay for supposed academic freedom, protest, and chaos.

The underlying politics of privatization did not come as a surprise, as Melinda Cooper points out.⁸ At the end of World War II, when the first veterans entered higher education via stipends granted by the first GI Bill of 1944, Chicago School economists Milton Friedman and Simon Kuznets wrote about the beneficial influence of the private capital market on higher education funding. In their view, “students could be persuaded to sell ‘stock’ in themselves and obligated to pay a portion of their future wages as ‘dividends’ to their public of stockholders.”^9] In this respect, students were not regarded as investing in their own futures but rather as debtors to society, to which they owed a portion of their future income. The ties to family hierarchies, which LBJ’s Great Society policies had allegedly severed by keeping university tuition-free, were to be restored by re-establishing creditor-debtor relations between the elder generation and students. Among Reagan’s first acts as governor were a 10 percent cut to the budgets of state colleges and universities and an attempt to introduce tuition for everyone.¹⁰ The enrollment fee was raised to $300 for in-state students, and non-Californians had to pay an annual tuition of $1,200. In the 1970s, tuition and fees at state universities gradually increased, and by the middle of the decade, the state budget was funding only one-third of the California University Association. Fees for Californians rose to over $600, and tuition for non-state residents increased to over $2,000 by the mid-1970s. Basically, all federal states followed this model, with the respective state governments emphasizing different aspects of the pricing of freedom to legitimize these policies.¹¹ The ideas of the Chicago School went from California into the wider academic landscape of the United States. More and more students had to take out huge loans to afford to study.

Financializing the Knowledge Industry

The federal government had to manage the invisible resource of risk that it took over from the private finance sector. In 1972, the Higher Education Act was amended to create the Student Loan Marketing Association (Sallie Mae). Sallie Mae was a financial structure committed to protecting private investments by backing default risks and subsidizing student loans.¹² Nevertheless, private education loans and government grants, especially the education grants implemented with the HEA of 1965 and named Pell Grants in 1972 after Senator Claiborne Pell, still existed in roughly equal measure during the 1970s.¹³ In 1980, 2.7 million students still received Pell Grants if their parents’ annual income was less than $25,000.¹⁴ However, private student financing models with government risk protection became the dominant mode in the 1980s. Student debt was operationalized and resold through a process called SLAPS (student loan asset-backed securitization). As Susanne Soederberg emphasizes, the securitization of student loan bonds became the “backbone of the student loan industry” from the 1980s onwards.¹⁵ By the mid-2000s—similar to practices in the subprime real estate loan market—the only loans issued to students were those whose risks and obligations could be securitized and resold in derivative securities.¹⁶

In 1995, as part of the above-mentioned neoliberal reforms by Bill Clinton’s administration, the decision was made to privatize Sallie Mae, turning the largest player in the student debt market into a for-profit private company. Thereafter, making more loans and expanding the volume of loan debt became one side of its business model; packaging and reselling asset-backed securities from the student debt market was the other. For the sake of these financial industry practices, student loans were exempted from insolvency and bankruptcy rights. Long since struggling with the debt he had taken on as the “price of freedom,” my interviewee Ryan received a letter from Sallie Mae in the early 2000s, informing him that it, too, had resold his loan debt, formally and without asking for his consent. Student loans enabled people to attain degrees in higher education and simultaneously made their economic future an object of ownership within a diffuse market of creditor interests and transactions. By the 1990s at the latest, credit and debt deeply impacted the present and future of young people’s lives. Student loans served as a gateway to further and steadily rising indebtedness, without which almost no educational investment was conceivable.

Since the Great Recession following the financial crisis of 2007/2008—and even before that—criticism sparked about the individual over-indebtedness produced in the U.S. debt economy, which had expanded immensely since the 1970s.¹⁷ As early as the end of the 1990s, cases of suicides among young people precipitated by their seemingly hopeless economic conditions received public attention. The first qualitative studies on the problem of young people’s mental overload from unbearable indebtedness were also conducted around this time.¹⁸ Indebtedness was shaping individual life stories and permeating higher education, just as Milton Friedman and Simon Kuznets had pleaded for decades before.¹⁹ The Student Debt Crisis Center (SDCC) website features first-person testimonies of more than 82,000 people from across the United States overburdened by their student debt.²⁰ A woman who gave herself the pseudonym “Overworked” posted in September 2021: “I have told others that they will bury me with my loans one day.”²¹ She toiled in a mental health clinic under the most severe pandemic conditions, where hospital beds had been set aside for COVID patients and where exhaustion and burnouts were common among staff.

Against this current background, historian Elizabeth Tandy Shermer deconstructs in Indentured Students: How Government Guaranteed Loans Left Generations Drowning in College Debt the history of student debt and shows not least that the system is not an unintended consequence of well-meaning education funding policies and accidental deregulation but, rather, was proffered by intentional debt policies.²²

Outstanding debt rose from $250 billion in the early 2000s to $1.7 trillion in the early 2020s.²³ That is what about 50 million U.S. citizens owe in both government and private loans. The share of private loans in this constellation rose steadily from the 1980s and then skyrocketed in the 1990s, when Ryan took out his loans.²⁴ “In the end, the price was too high,” he concluded concerning student loans being the price of freedom. In our last conversation, he told me about liquidating a pension plan to pay off some of his student debt. At the same time, he pointed out that many people in the U.S. are even far worse off because they had to keep living on credit.

Living on Credit

My book Leben auf Kredit embeds the student loan form of debt in a larger history of indebtedness and liabilities in the United States, with a particular focus on societal difference and precariousness. In a petition to Congress, Sojourner Truth wrote shortly after the end of the Civil War and slavery in 1865: “America owes to my people some of the dividends. … I shall make them understand that there is a debt to the Negro people which they can never repay.”²⁵ Living on Credit sets out at this point, when the least free individuals were promised a future as freedmen and freedwomen. At the same time, however, the government enacted policies and put structures in place that kept Black Americans indebted. Instead of receiving reparations themselves, many were overburdened by a structural debt economy relying on a wide array of exploitive practices. Black Americans had to toil as sharecroppers, or were subject to criminalization, convict leasing, segregation, racial covenants, or redlining. Living on Credit illuminates the history of various forms of liabilities, refers to images of loan sharks from the 1920s, delineates the impact of real estate and mortgages, and elucidates how, along with student loans, credit cards brought neoliberalism into people’s pockets and into their everyday life experiences. The precariousness inherent in debt policies and practices reveals that Black Americans, workers, working-class women, and migrants were repeatedly exposed to higher credit risks or agonizing conditions. For most of them, “in the end the price was too high.” This is what debt difference (Schuldendifferenz) addresses and what Leben auf Kredit is about.

Felix Krämer teaches at the Department of History in Erfurt and is Principal Investigator of the Collaborative Research Center “Structural Change of Property.“ His research interests include gender and body history, the history of religion and media, and the field of the new history of capitalism. His second book Leben auf Kredit focuses on the history of debts, precarity, and difference in the US from the end of slavery to the present.

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1. To anonymize the life stories people shared with me, I changed interviewees’ names.[↩]
2. Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance (Cambridge: Harvard University Press, 2011).[↩]
3. Clark Kerr, The Uses of the University (Cambridge: Harvard University Press, 1963).[↩]
4. Mark Huelsman, The Debt Divide: The Racial and Class Bias Behind the ‘New Normal’ of Student Borrowing (New York: Demos, 2015), 4.[↩]
5. William Elliott III and Melinda K. Lewis, Student Debt: A Reference Handbook, ABC-CLIO, LLC, 2017, 11.[↩]
6. Matthew B. Fuller, “A History of Financial Aid to Students,” Journal of Student Financial Aid 44, no. 1 (2014): 42–68.[↩]
7. Ronald Reagan, “The Morality Gap at Berkeley,” speech at Cow Palace, May 12, 1966, in The Creative Society, 125–29, by idem (New York: Devin-Adair Co., 1968); Maiya Moncino, “‘Tuition Is Not a Dirty Word’: Ronald Reagan, the University of California, and the Dismantling of the Tuition-Free Principle,” Clio’s Scroll: The Berkeley Undergraduate History Journal 17,  no. 1 (Fall 2015): 57–98.[↩]
8. Melinda Cooper, Family Values: Between Neoliberalism and the New Social Conservatism (New York: Zone Books, 2017), 232–39.[↩]
9. Milton Friedman and Simon Kuznets, Income from Independent Professional Practice (New York: National Bureau of Economic Research, 1945), 90; qtd. in Cooper, Family Values, 224.[↩]
10. Cooper, Family Values, 236.[↩]
11. See Christopher Newfield, Unmaking the Public University: The Forty-Year Assault on the Middle Class (Cambridge: Harvard University Press, 2011), 51–67.[↩]
12. Elliott III and Lewis, Student Debt, 12/284.[↩]
13. See Fuller, “A History of Financial Aid to Students,” 54.[↩]
14. Huelsman, The Debt Divide, 4.[↩]
15. Susanne Soederberg, Debtfare States and the Poverty Industry: Money, Discipline and the Surplus Population (London: Routledge, 2014), 110.[↩]
16. Soederberg, Debtfare States, 110.[↩]
17. Sandy Baum, “The Evolution of Student Debt in the United States,” in Student Loans and the Dynamic of Debt, ed. Brad Hershbein and Kevin M. Hollenbeck (Kalamazoo, 2015), 11–35.[↩]
18. See Robert D. Manning, Credit Card Nation: The Consequences of America’s Addiction to Credit (New York: Basic Books, 2000), 159–61.[↩]
19. Friedman, Kuznets, Income from Independent Professional Practice, 90.[↩]
20. https://studentdebtcrisis.org/stories/, Student Debt Crisis Center (SDCC), 15442 Ventura Blvd. 102, Los Angeles, CA 91403, accessed July 11, 2024.[↩]
21. Overworked, September 22, 2021, https://studentdebtcrisis.org/stories/.[↩]
22. Elizabeth Tandy Shermer, Indentured Students: How Government Guaranteed Loans Left Generations Drowning in College Debt (Cambridge: Harvard University Press, 2021).[↩]
23. Ibid., 289.[↩]
24. Roger L. Geiger, American Higher Education since World War II: A History (Princeton: Princeton University Press, 2019), 315. See the following site: https://community.debtcollective.org/, accessed February 10, 2022.[↩]
25. Robin D. G. Kelly, Freedom Dreams. The Black Radical Imagination (Boston: Beacon Press, 2002), 113.[↩]

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