Life

A Student Loan Mini-History And A Primer On The New REPAYE Program

Preach, Elizabeth Warren. Student loans are a huge stressor for a whole lot of people these days. How many people? Back in 2010, 1 in 5 households carried some form of student debt, according to a Pew Research study. Two years later, Pew found that 69% of college graduates had taken out loans to finance their education.

Of course, it wasn’t always this way. Student loans have only been a thing in America since the Space Race, when Eisenhower established the National Defense Education Act of 1958 as a means of financing and thereby improving science and technical education in the U.S. Back then, loans were low-interest and came directly from the government.

It only took seven years to change that. With Lyndon Johnson’s Higher Education Act, the way the federal loan program was financed changed: instead of the dollars coming directly from the treasury, loans were made by banks. The government guaranteed to repay loans that students defaulted on, which meant it was a win-win situation for both parties—banks didn’t have to worry about bad loans, and the government didn’t have to mark the outstanding loans as debt on their books.

Enter Nixon, and the birth of Sallie Mae. Are you ready for your Whoa Fact of the day? Sallie Mae is actually the nickname for the Student Loan Marketing Association, or SLM. People, they’ve given a corporation a female name to humanize it. (And as a complete aside, if you’re wondering if Freddie Mac is the same way, it is. It stands for the Federal Home Loan Mortgage Corporation, or FHLMC. Wut.)

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Sallie Mae was created in 1972 as a “government-sponsored enterprise.” What it did was buy up all the banks’ student loans so that money could be freed up for federally-insured lending. Which, if you take a step back, feels like a pretty roundabout way to finance student loans.

As it happens, Bill Clinton felt the same way. He saw that private companies handling the government-backed loans were costing taxpayers way more than the old-school direct loans of Eisenhower’s day; unfortunately, when he tried to return the loan system to The Way Things Were, Republican lawmakers accused it of being a government takeover. In the end, Congress compromised and phased in some direct loans while leaving Sallie Mae mostly untouched (“mostly,” because in 2004, following the urging of Clinton, the corporation privatized).

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