Sputnik Moments

After reading Adam’s post, I started thinking about the history and future of the government’s role in higher education and funding, and tried to make some comparisons and contrasts.

Feeling outdone by the Russians in 1957, the US government became increasingly interested in investing in students, in giving students a competitive edge in the market, and ultimately giving the country a competitive edge within the world economy. In this way, the original goal of the government was to try to make higher education more accessible, regardless of what families could afford – that’s the key phrase. It seems noble in intention, but is creating a bubble and saddling students with an enormous burden.

I am less critical of Obama’s State of the Union rhetoric in light of the bill he signed to overhaul the student loan program. He spoke of the United States’ “Sputnik moment” and the need to “invest in the future.” Drawing historical parallels, his statement was largely interpreted according to our previous “Sputnik moment,” the one that spurred the development of the bank-based student loan program in 1965. Obama’s mission, however, has been to restructure and monitor that system. Moreover, the bill’s purpose was to restructure the system of financial aid in a way that would minimize the burden of debt for lower-income student seeking higher education. It “eliminates fees paid to private banks to act as intermediaries in providing loans to college students and use much of the nearly $68 billion in savings over 11 years to expand Pell grants and make it easier for students to repay outstanding loans after graduating.” It also allows students to “to cap repayments at 10 percent of income above a basic living allowance, instead of 15 percent. Moreover, if they keep up payments, their balances will be forgiven after 20 years instead of 25 years — or after 10 years if they are in public service, like teaching, nursing or serving in the military.” The greatest triumph, however, was in calling out Sallie Mae, which has “received guaranteed federal subsidies [since 1965] to lend money to students, with the government assuming nearly all the risk.” The program essentially “fattened the bottom line for banks AT THE EXPENSE OF STUDENTS AND TAXPAYERS. Why are we paying people to lend the government’s money and then the government guarantees the loan and the government takes back the loan?” Sounds familiar. It’s very telling, and frightening, the extent to which Sallie Mae pervasively has its hands in every corner of the economic crisis. At the same time, it’s somewhat uplifting to see Obama and legislators going after Sallie Mae, even if bills are watered down considerably in Congress, and even if it is done in the context of competing with China.

http://www.nytimes.com/2010/03/26/us/politics/26loans.html

http://www.nytimes.com/2010/03/31/us/politics/31obama.html