- When the USSR launched Sputnik, the first orbiting satellite, the US worried it was falling behind.
- Eisenhower responded by creating a program to help more people afford college — and boost the US.
- While it was created to further educational equity, the student-loan program now furthers debt.
Sputnik was a wake-up call for the US: Americans needed to be smarter.
On October 4, 1957, the Soviet Union launched the first Earth-orbiting satellite, Sputnik. It was a clear sign to President Dwight Eisenhower that the US needed to be producing more scientists and engineers to compete with other nations. But there was one problem — the education system at the time was exclusive and shut out low- and middle-income people from participating.
America wasn't going to catch up to the Soviets in the "space race" as long as that was the case.
Congress stepped in and created the National Defense Education Act (NDEA) at Eisenhower's request, which allowed the government to give loans to students in science and mathematics fields. It was later amended to remove restrictions on fields of study.
In other words, Sputnik spurred the creation of the federal student-loan program, as detailed in "The Debt Trap," a new book by Wall Street Journal reporter Josh Mitchell.
"It is no exaggeration to say that America's progress in many fields of endeavor in the years ahead — in fact, the very survival of our free country — may depend in large part upon the education we provide for our young people now," the House report recommending the bill's passage stated.
President Lyndon B. Johnson said in 1964 remarks that more than 600,000 additional students had gotten access to education thanks to the NDEA's student-loan program. But there was still more to do to tackle affordability, Johnson said, noting that Americans were spending $4,000 to $5,000 on each child's college.
"Now, ladies and gentlemen, this just must not continue," Johnson added. "The challenge is obvious and we must meet it. Higher costs must not put higher education out of reach."
Today, the average annual out-of-state tuition for a public university is $15,000, fewer and fewer people are enrolling in college as the nation's student-debt load stands at $1.7 trillion and grows by the day. What started as an altruistic educational pursuit has now become a full-fledged crisis.
Government involvement in US education is hurting the people it intended to help
Johnson, well known for his war on poverty, expanded the education system in an attempt to give everyone a fair shot at college — a core pillar of the American Dream. To fulfill his goal of universal access to education, he signed the Higher Education Act of 1965, which guaranteed loans for the middle class.
But after the Act's passage, banks began raising interest rates on student loans and the system came to profit lenders while borrowers accumulated more debt. Colleges kept raising tuition as more federal aid became available. It created a trap for students across the country, as Mitchell explains: The more colleges raised tuition, the more Americans had to borrow, and the more Americans had to borrow, the more colleges raised tuition.
Alice Rivlin, the first Congressional Budget Office head tasked with crafting Johnson's student-loan program, told Mitchell in 2019 that the idea behind federal loans was that "higher education added to your future income and therefore loan finance was a sensible thing. You could pay it back out of your future income."
But looking back, when asked what she thought of how the loan industry turned out, Rivlin told Mitchell: "We unleashed a monster."
The average American holds about $32,000 in student debt after graduating. Due to high interest rates, if the borrower does not make sufficient income, it could be very difficult and sometimes impossible, for the borrower to pay off even the original loan amount.
For example, David Wise, 59, originally borrowed $79,000 in student debt, had paid off $175,000 of it, and still owes $236,485.
"I feel like I've actually been responsible, and I've paid a considerable amount of money on my student loans," Wise told Insider. "But it really is a debtor's prison."
It's even worse for parents who want to give their kids a chance at higher education. Parent PLUS loans are federal loans parents can take out to finance their kids' education, and the loan can cover up to the cost of attendance and is not based on income.
It's created a system of unchecked borrowing, and with PLUS loans having the highest interest rates of 6.28%, parents are often stuck paying off debt for the rest of their lives simply because they wanted to give their kids the best future.
President Joe Biden has taken steps to tackle the student debt crisis. He has begun to reform student-loan forgiveness programs that have failed borrowers over past years, like one intended for public servants, and he promised to pass free community college during his term, which will significantly reduce college affordability issues.
But even with those reforms, 45 million Americans continue to shoulder significant debt burdens, shutting many out of the American Dream Eisenhower and Johnson envisioned.