Student Loans 101: Why Uncle Sam is your banker

Connie Cass:

A look at the 55-year history of federal student loans:
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Americans got a shock from the sky in October 1957.

The first artificial satellite was passing overhead. And it wasn't just man-made, it was Soviet-made.

Beach ball-sized Sputnik touched off a space race and stoked big fears that American students might not be up to the challenges of the Cold War.

Calls to improve science and technical education led President Dwight Eisenhower to establish a low-interest college loan program through the National Defense Education Act of 1958. The loan dollars came directly from the government.

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Then came Lyndon Johnson's "war on poverty."

Student loans got a major boost in 1965 as part of the president's Great Society initiatives. The Higher Education Act expanded loans as well as grants to help needy students, contributing to the era's college boom. It also changed the way the federal loan program was financed. Instead of using government money directly, the loans would be made by bankers. But the government guaranteed that if students defaulted, the U.S. government would cover the tab.

Posted by Jim Zellmer at July 21, 2013 12:23 AM
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