How the launch of Sputnik inspired the creation of the US student loan industry


  • When the USSR launched Sputnik, the first satellite into orbit, the United States feared it was falling behind.
  • Eisenhower responded by creating a program to help more people afford higher education – and to boost the United States.
  • Although it was created to promote equity in education, the student loan program now promotes debt.

Sputnik was a wake-up call for the United States: Americans had to be smarter.

On October 4, 1957, the Soviet Union launched the first satellite into Earth orbit, Sputnik. It was a clear sign to President Dwight Eisenhower that the United States needed to produce more scientists and engineers to compete with other nations. But there was a problem: the education system at the time was exclusive and excluded low- and middle-income people from participating.

America was not going to catch up with the Soviets in the “space race” as long as it did.

Congress stepped in and created the National Defense Education Act (NDEA) at Eisenhower’s behest, which allowed the government to provide loans to students in science and math. It was then 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 to come – indeed, the very survival of our free country – may depend in large part on the education that we are now dispensing to our young people, ”said House said the report recommending passage of the bill.

President Lyndon B. Johnson said in 1964 that more than 600,000 additional students had gained access to education through the NDEA student loan program. But there was still a long way to go to tackle affordability, Johnson said, noting Americans spend $ 4,000 to $ 5,000 on every child’s college.

“Now ladies and gentlemen, this just doesn’t have to continue,” Johnson added. “The challenge is obvious and we must meet it. Higher costs should not put higher education out of reach.

Today, the average annual tuition fee for an out-of-state public university is $ 15,000, with fewer people enrolling in university as the nation’s student debt grows. stands at $ 1.7 trillion and growing day by day. What started as a selfless educational pursuit has now grown into a crisis in its own right.

Government involvement in education in the United States harms the people it intended to help

Johnson, well known for his war on poverty, expanded the education system in a bid to give everyone a fair chance at college – a central pillar of the American Dream. To achieve 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 law was passed, banks started raising interest rates on student loans, and the system benefited lenders as borrowers racked up more debt. Colleges continued to increase tuition fees as federal aid became available. This created a trap for students across the country, as Mitchell explains: The more colleges raised tuition fees, the more Americans had to borrow, and the more Americans had to borrow, the more colleges raised tuition fees.

Alice Rivlin, the Congressional Budget Office’s first director responsible for designing Johnson’s student loan program, told Mitchell in 2019 that the idea behind federal loans was that “higher education adds to your future income and the So loan financing made sense. You could pay it off with your future income. “

But looking back, when asked what she thought of the evolution of the lending industry, Rivlin told Mitchell, “We’ve unleashed a monster.”

The average American has about $ 32,000 in student debt after graduation. Due to the high interest rates, if the borrower does not earn enough income, it might be very difficult, if not impossible, for the borrower to repay even the original loan amount.

For example, David Wise, 59, initially borrowed $ 79,000 in student debt, paid off $ 175,000, and still owes $ 236,485.

“I feel like I have been responsible and have paid a considerable amount on my student loans,” Wise told Insider. “But it really is a debtors prison.”

It is even worse for parents who want to give their children a chance to study in higher education. Parent PLUS loans are federal loans that parents can take out to finance their children’s education, and the loan can cover tuition and is not income-based.

He created an uncontrolled borrowing system, and with PLUS loans having the highest interest rates of 6.28%, parents are often forced to pay off their debts for the rest of their lives simply because they wanted to provide the best future for their children.

President Joe Biden has taken action to tackle the student debt crisis. He began reforming student loan forgiveness programs that have failed borrowers in recent years, such as the one for government officials, and he vowed to pass a free community college during his tenure, which will dramatically reduce problems with debt. affordability of colleges.

But even with these reforms, 45 million Americans continue to take on significant debts, ruling out many of the American dream envisioned by Eisenhower and Johnson.


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