The history of student loan debt and soaring tuition rates

Senator Bernie Sanders recently floated a controversial federal plan to make public universities and community colleges tuition-free. Sanders also wants to eliminate student loan debt, and pay for it with an ambiguously defined tax on Wall Street. Western universities have existed in the modern sense for roughly 1,000 years. Until the past 50-100 of those years, the role of central governments in tuition was minimal. In 1240, an Englishman named Robert Grosseteste began a student loan business called St Frideswide's Chest. It was essentially a pawn shop where students used gold, silver, and textbooks as collateral for their tuition. In 1643, wealthy donors to Harvard University founded the first scholarship endowment. In 1838, Harvard established an interest-free lending 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 degrees in national security related fields. The most significant changes came with the Higher Education Act of 1965. That legislation federally guaranteed student loans, established the Stafford loans that millions receive today, and created Pell Grants for 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 U.S. Department of Education. It also reduced the period of eligibility for student loan forgiveness from 25 to 20 years for new borrowers. A 2015 Federal Reserve report found a significant correlation between federal student aid and rising tuition rates.

School may be out for summer, but these days student loan debt never takes a break. Student loan debt in the United States reached $1 trillion in April of 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, "College tuition has soared 1,375% since 1978, more than four times the rate of overall inflation, Labor Department data show." Demonstrated by the figure below, in 2003 the 50-state average student debt per capita was $1,135 ($1,549 in 2018 dollars), and rose to $5,438 by 2018. The 50-state average of student loan delinquency rates changed insignificantly from 2005 to 2011, then increased sharply between 2011 and 2012 from 8.1 percent to 11.5 percent, and have been stagnant since 2012.

(Both figures include a 50-state average, Iowa, and the three largest states by population.)

Despite the consistently exorbitant rise in tuition rates, American universities remain among the finest collegiate institutions in the world. I have been a student at the University of Iowa for three semesters now. During that time I've taken International Conflict with a premier researcher in the field, Sara McLaughlin Mitchell, who co-authored one of the course's textbooks. Last semester I learned about Southeast Asia from Ronald McMullen, a former U.S. Ambassador who served as a diplomat for 30 years.

Such exceptional learning experiences have made America the top destination for international students by a long shot, with nearly 1.1 million foreigners enrolled in 2018. The second and third countries on that list, China and the UK respectively, only had about half a million each. In the fall 2018 semester, 9.3 percent of the University of Iowa's 33,000 students came from abroad. Of those 3,056 international students, 57.9 percent are Chinese. Most international students pay full out-of-state tuition, therefore subsidizing the education of in-state residents like myself. The estimated out-of-state tuition at Iowa for the coming school year is $31,793, with an in-state tuition of $9,380. Tuition rates at other state schools are similar, generally within a margin of $4,000 (California's are higher). Most international students at Iowa, the Chinese in particular, are relatively wealthy and make significant contributions to our economy. I know this first-hand because on more than one occasion I've been a couple minutes late to class after lingering in the library parking lot, drooling over the Porsches and Mercedes that so many of them drive.

Maybe Bernie Sanders is right that public universities should be tuition-free, but Americans would be wise to consider what makes these universities so attractive to outsiders before making any sweeping changes to the manner in which the entire system is funded. The anniversary of our magnificent country's independence is an excellent time for civic reflection. We at Truth in Accounting hope that lawmakers, and the citizens who choose them, will make policy decisions based in prudence and empiricism. That's why our staff works so hard to keep the State Data Lab updated with countless statistics on the federal government, all 50 states, and 75 of America's largest cities. Anyway, happy birthday America!

Jason O'Day is a student at the University of Iowa and a digital communications intern at Truth in Accounting, a nonprofit organization based in Chicago that researches government financial data.