On Oct. 4, 1957, the Soviet Union shocked America with the successful launch of Sputnik I, the first man-made object launched into Earth orbit. The 20th century quickly became passé. The race was on for the 21st century and America realized the race would be won with technical skill and know-how. So, the response was quick. By September 1958, President Eisenhower and the 85th Congress, with the Senate almost evenly split between 49 Democrats and 47 Republicans voting 62-26, put in place the National Defense Student Loan program.
Concerned that America could not produce enough skilled people if college was left to the wealthy, the loan program was to make sure that talented but less well-off American children could have access to a college education to make sure we would have enough teachers to keep class sizes down, scientists and engineers to meet the technical challenges and skilled linguists for a global society.
The maximum loan a student could take out was $1,000 a year and $5,000 over a lifetime. That figure needs to be put in context in two ways. Adjusted for inflation, that would be $8,060 today, compared with the current program’s cap of $5,500 a year. But, to put $1,000 in the context of college tuition, in 1958 tuition to the Ivy League University of Pennsylvania was $1,050 a year for undergraduates.
The loans were backed by the U.S. Treasury, so the legislation fixed the payback at the cost of money to the U.S. government—3 percent. To put that 3 percent in context, in 1958, the prime rate that leading banks charged good corporate clients was 4 percent and home mortgage interest rates were running close to 5 percent. There was built-in loan forgiveness for students who entered the K-12 teaching corps. So, to summarize, in less than one year, a Republican president and a Democratic Congress put in place a program to expand college opportunity so that an American child could borrow and pay for tuition to any college in the United States, including the Ivy League, and borrow the money at a rate less than the prime rate for American corporations or home mortgage rates of the day.
Now, in 2013, the 21st century is here. What policymakers understood in 1958 would happen is upon us. We live in a global economy where the success of a nation is dependent on the ability to train a highly skilled work force. And what is the reaction? Well, the Senate passed an immigration reform bill that will increase the flow of highly skilled workers into the United States by estimates of 40,000 a year. And, Congress left town to celebrate American Independence, letting the interest rate on college student debt double to 6.8 percent at a time when the prime rate is 3.25 percent and mortgages are around 4.3 percent.
On Tuesday, the president met with the Congressional Black Caucus, which raised the regulatory changes the Department of Education made that resulted in denying college loan access to middle-income African American families by arbitrarily changing the way their creditworthiness was determined. African American families that had been receiving loans then were denied loans, throwing students out of school midway in their studies.