From one point of view, the student loan program has returned to normal. Tens of millions of people continue to take out loans to pay for their education, and tens of millions more have resumed making monthly payments after more than four years of forbearance. Struggles over the future of student debt—over its terms, its cancellation and so on—have receded from the political spotlight with so much chaos and brutality elsewhere.
From another point of view, student lending is descending deeper into crisis. Delinquency rates are high and rising. While payment obligations have resumed, there is a pause on involuntary collections, at least until July. And this pause was instigated so the Department of Education could figure out how to transition debtors to yet another repayment plan while managing multiple lawsuits compelling it to handle previous repayment and discharge plans as promised. Enacting another repayment transition would be tumultuous for the Department and borrowers given a long history of administrative incompetence, shoddy record keeping, and servicer sabotage. But, to make matters worse, the Project-2025-influenced Department is simultaneously exploring how to close itself down and transfer loan management to the Treasury, and perhaps also sell a substantial swath of outstanding loans to private financial institutions. Meanwhile, the Trump administration attempts to mold higher education in its image by manipulating civil rights enforcement and sabotaging federal research funding.
It is tempting to see this administration as an aberration, but most of the chaos and contradictions involved have been building for years.
During the neoliberal era, the basic terms of higher education finance were relatively stable. A broad consensus in favor of a robust student loan program made repeated bargaining and compromise possible across party lines and interest groups. The scope of political disagreement was narrow, as was the scope of political participation. Even where legislative compromises remained elusive, court deference to administrative flexibility made adjustment possible.
Today that consensus is fraying. I am increasingly convinced that the best way to understand the current politics of student loans is as part of an extended period of crisis that has accelerated since the financial crash of 2007. Administrative flexibility has been undermined, and political bargaining has become increasingly difficult. Even as the student loan system continues to muddle along, the basic terms of federal higher education finance are up for grabs. In the short term, we are likely to see a more punitive system combined with an erosion of administrative capacity and increased experimentation with ideological conditioning of funds. But it is very likely that this administration will overplay its hand, which could create the conditions for pushing federal higher education policy in a dramatically more progressive direction.
Either way, progressives who care about the future of higher education should be preparing. New types of wonkery and imagination will be required, and quickly.
To understand how the politics of student loans came apart, we must first understand how they came together (as I do in more detail in a forthcoming article).
The basic template for modern federal higher education policy was developed in the aftermath of World War II. In that period, mass higher education was still a new and untested idea. Universal high school had only recently been established. Although college attendance was expanding rapidly with support from state governments, many obstacles stood in the way of the federal government lending a hand. Among them: states, universities, and segregationists feared federal influence; budget hawks worried about cost; and policymakers disagreed over the purpose of a college education and who deserved support in obtaining one.
Via a long process of experimentation and compromise, it was decided that, rather than support universities generally and condition support on affordability (and quality), the federal government would separate its higher education spending into two separate channels: one for research and one to help students pay. Research funding was seen as necessary for a modern military and for the miraculous medical breakthroughs that legislators had themselves witnessed. Providing general support to make college accessible was more controversial. But sending support to students for their choice of credentialed college left most governance in the hands of universities and states, successfully avoiding concerns about federal overreach.
Federal research and student aid programs developed along largely separate paths. Among student aid programs, student loans initially only played a supporting role. In the heyday of the New Deal (and Great Society) order, majorities supported means-tested grants that would cover nearly all of a student’s tuition. Student loans arrived as a way to fill gaps for middle-income students above the means testing threshold and for lower-income students in higher tuition programs. Loans had their own pay-for mechanism, making them “fiscally light” (to use Sarah Quinn’s terminology). They were also considered “ideologically light,” appearing simultaneously as a form of social spending and a program compatible with market competition and individual responsibility.
With the collapse of large liberal legislative majorities, the ascendancy of the modern conservative movement, and mounting fiscal pressure, support for grants waned, making the political lightness of loans all the more important.
During the Reagan administration, loans became a central stabilizing feature of higher education politics. As the ideology of higher education increasingly focused on individual investments in future earning capacity, student debt increasingly appeared as the most natural and efficient way to finance it. That loans reinforced market competition between colleges and encouraged students to strategize about the earning potential of different careers was a bonus.
At a more material level, decades of student loans created an industry that included lenders, guarantee agents, securitizers, servicers, financial aid officers, and for-profit college investors. These stakeholders, whose revenues depended on the federal loan program, lobbied heavily for its continuation and expansion while making it harder for debtors to escape their burdens. Various constituencies beyond this core lobbying group also came to rely on student debt; state governments depended on student loans to fill gaps in public university funding, and colleges themselves became active boosters of student borrowing.
Student loans, in other words, were something everybody could agree on. Debate on student aid policy largely focused on ways to reform the student loan program or supplement it with tax-preferred savings vehicles.
This reliance on debt also transformed the higher education system. As tuition rose, so did the financial burdens on students—especially Black, Brown, and low-income students. The growing prevalence of student debt contributed to a narrower, more vocational vision of education, resulting in declining support for the humanities. At an institutional level, colleges have increasingly focused on competing for status and tuition, deepening inequalities between institutions. Politically, Congress and the Department of Education became more firmly beholden to the student loan lobby.
Ironically, as these changes took root, they undermined the conditions for coalitional compromise that made them possible. Corruption and favoritism began to eat away at the legitimacy of the system, especially after the overall delegitimation of financial institutions following the 2007 financial crisis. At the same time, outsider politics emerged on both sides of the aisle: anti-student-debt on the left and anti-higher-education on the right. Increasing evidence about the costs of administration and high rates of default also made clear that student loans were not as fiscally light as originally thought. As economic distress built and policymakers attempted to make student loans less burdensome, a political divide emerged over how progressive repayment programs should be, undermining both ideological and fiscal lightness.
These and other dynamics—including increased partisanship and conservative constitutional hardball—have made the politics of student debt increasingly confrontational. Not long ago, it would have been possible to produce Congressional majorities that would reform technical issues in loan servicing or compromise on repayment plans. Today, even minor tweaks have become nearly as politically difficult as major reforms.
With congressional compromises off the table, focus shifted to the administrative state. As Jonathan Glater and I detail in another forthcoming piece, the Department attempted as near a total restructuring of the student loan system as is possible within the current statutory framework during the Biden administration. We are doubtful that these reforms would have totally re-stabilized the administration or politics of student debt, but, in any case, skeptical federal courts and a new president blocked them from taking effect. Moreover, the case law that stymied them now closes most of the path toward serious agency reform.
That brings us back to current contradictions. Student loans retain some stabilizing power. They continue to be issued and even this do-nothing Republican Congress passed a law creating a new repayment structure. But relying on automatic stabilizing mechanisms is becoming increasingly untenable. Political divides are real and deepening. The student loan lobby is at its weakest since its formation. Depending on how severely the current Trump administration mucks things up, a deep rethinking of the entire structure may be inevitable. Even short of that, it will be impossible for a future Democratic administration to simply ignore the issue.
Volatility is the rule for the foreseeable future, but the terms of re-stabilization are up for grabs. Now is the time for progressives who care about the future of higher education to consider what re-stabilization could look like. Doing so should involve both imagining a new system of federal financing—which Marshall Steinbaum and Andrew Elrod have begun to do—and cobbling together coalitions to enact and maintain it. A system of higher education finance that spreads burdens and interrupts status competition will upend the traditional lobbying industries and will be unable to hide its budgetary impact. To rethink stability, we need to revisit questions that have fallen off the table—such as whether to abandon demand-side subsidy altogether, whether research funding should be treated separately from other institutional funding, which constitutional authority to invoke for the creation of a federal system of public schools, and how to embed robust protections for academic freedom into our institutions.
It may seem like these questions are a long way off, but the current chaos could force us to confront them sooner than we ever thought possible. Student loans have held much of the higher education system together. If this crisis deepens, we will need new methods for doing so.
