The History of Student Loans (and How to Avoid Repeating It)

 June 25, 2021
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This bit of the history of student loans might surprise you: Using the first documented system of education debt in 1240, aspiring scholars at Oxford University had to deposit their valuable possessions — anything from precious metal cutlery to hand-made animal-skin books — in wooden chests to secure funding. That’s how student loans were invented.

You might look at the way we borrow and repay this debt and decide that we’re still stuck in the Middle Ages. As of 2021, 45 million Americans share about $1.7 trillion in debt. Meanwhile, the average 2019 graduate entered the workforce $29,900 in the red.

Here’s the history of student loans in the U.S. — and how we might reverse it going forward.

Student debt history: A legislative timeline in America

When did student loans start in the United States? Well, about 600 years after Oxford students literally put their possessions on loan, Harvard University students didn’t need collateral at all. The Ivy League school began providing zero-interest loans in 1838. But those low rates didn’t last.

What followed was nearly 200 years of evolution on financial aid for education, about 75 of which have been shaped by the U.S. Congress.

1944: G.I. Bill (or the Servicemen’s Readjustment Act)

With the U.S. winding down its World War II efforts, the country needed to redeploy millions of military members — into society.

President Franklin D. Roosevelt signed this bill into law in the summer of ‘44. Among its provisions was giving veterans up to $500 per school year to cover their new or ongoing educations, plus a living allowance. The 1952 Veterans Readjustment Assistance Act extended these benefits to Korean War veterans.

So what? Still in practice, this legislation helps military members afford their education. In fact, the U.S. Department of Veteran Affairs offers a G.I. Bill Comparison Tool to compare the benefits offered by schools.

1958: The National Defense Education Act

Consider this legislation spurred on by Sputnik, the then-Soviet Union’s orbiting satellite — the U.S. Congress took losing a battle in the so-called Space Race as reason to get moving on federal funding for college schooling. (Notably, this occurred 91 years after establishing the first incarnation of what became the current Cabinet-level Department of Education.)

NDEA student loans were meant to target the study of science, math and foreign language. It undoubtedly had more general application: From 1960 to 1970, the national college enrollment grew from 3.6 million to 7.5 million.

So what? This law was America’s first successful foray into federal aid for college education. A precursor to the federal Perkins loan program, it set the stage for the House and Senate acting to make college more accessible for students from every state.

1965: The Higher Education Act

Signed in November by President Lyndon B. Johnson, this law gave federal funds to state schools for, in part, low-interest loans and initiated the now-defunct Federal Family Education Loan Program.

The Student Loan Marketing Association — more famously known as Sallie Mae — was born in 1973 to service these loans, and the Middle-Income Assistance Act of 1978 popularized them.

So what? The legislation has been amended and reauthorized again and again by the U.S. Congress and continues to support higher education even if students don’t directly benefit from the money. Sallie Mae, meanwhile, has since transitioned from a public company to a private one, from a federal loan servicer to a private lender.

1972: The Basic Educational Opportunity Grant

This law was renamed in 1980 for Sen. Claiborne Pell, a Rhode Island Democrat who led the effort to get it passed. It was designed to offer gift aid (which doesn’t need to be repaid) to the neediest college hopefuls.

So what? Still in existence today, the maximum award for 2021-22 was set at $6,495. For students with low-income backgrounds, the Pell Grant offers the ability to take out fewer or lower-value student loans than would otherwise be necessary.

1992: The Higher Education Amendments

In the course of reauthorizing the Higher Education Act of 1965, this legislation resulted in many milestones, including the creation of the Free Application for Federal Student Aid (FAFSA) and the unsubsidized Stafford loan program. Representative William D. Ford, a Michigan Democrat, also led the effort to get a direct loan pilot program approved.

So what? The FAFSA has become every aspiring and current college student’s first step toward securing financial aid, and the resulting William D. Ford federal direct loan program offers four types of loans to this day. Unlike the federal Perkins loan program, it doesn’t award loans based on the applicant borrower’s financial need — nearly everyone is eligible.

2001: The Economic Growth and Tax Relief Reconciliation Act

This law, signed by President George W. Bush, improved upon 1997 legislation signed by Bill Clinton to make student loan payments tax-deductible for borrowers.

So what? The Internal Revenue Service’s resulting student loan interest tax deduction remains in effect, allowing qualifying taxpayers the ability to deduct up to $2,500 of interest payments for the previous calendar year.

2007: The College Cost Reduction and Access Act

Also signed by the second President Bush, this landmark legislation was highlighted by two key provisions that put a stopping point on loans:

So what? IBR — which sets your monthly loan payments at 10% or 15% of your income (dependent on the year you first received your loans) for a maximum period of 25 years — has been an important option for borrowers who don’t go on to earn significant salaries. The act also paved the way for other income-driven repayment plans, including Pay As You Earn. PSLF, meanwhile, forgives loans after 10 years of repayment for civil servants.

2010: The Health Care and Education Reconciliation Act

Months before the country’s student loan debt first eclipsed its credit card debt in August 2010, this act eliminated the Federal Family Education Loan Program, requiring that all new federal loans be direct loans. If you were wondering when the government took over student loans, now you know.

So what? The end of FFELs left banks and other financial institutions excluded from lending government-guaranteed loans. While some private lenders left the industry altogether, others stayed on and were eventually joined by online upstarts to offer alternative loans as an option for families to consider after first exhausting their federal financial aid. Americans currently owe $130-plus billion in private loan debt, according to our student loan statistics.

2011: Dodd-Frank Wall Street Reform and Consumer Protection Act

In the wake of the Great Recession and the state budgets cuts that ensued, this law, signed by President Obama, included the establishment of the Consumer Financial Protection Bureau (CFPB).

So what? Though embattled in recent years, the CFPB remains one of the best places to get support for a troublesome loan servicer. The bureau takes steps to protect borrowers from abusive or deceptive financial practices, as well as offering essential education to consumers.

2015: Pay As You Earn … Revised

At President Obama’s direction, the Department of Education officially launched the Revised Pay as You Earn (REPAYE) method for federal loan borrowers. In that same year, Obama unveiled the Student Aid Bill of Rights.

So what? REPAYE expanded upon the original Pay As You Earn (PAYE) income-driven repayment method to include any borrower of any direct loan program. It allowed these borrowers cap their monthly payments as 10% of income and comes with forgiveness after two decades of timely payments.

Student loan debt over the last decade

Over the last decade in student debt, the country’s combined outstanding balance grew from $760 billion in 2010 to $1.5 trillion by the turn of the decade in late 2019. The segment grew faster than debt accumulated for credit cards and auto loans.

The growth of the federal government’s student loan portfolio mirrors those gargantuan numbers. It more than doubled between 2010 and 2019, rising from $750 million to $1.45 trillion. Privately-held student loans — those owned by banks, credit unions, online lenders and state financing authorities — make up a much smaller slice of the pie.

Perhaps surprisingly, borrowing has actually been on the decline. Rates of federal student loan borrowing among undergraduate and graduate borrowers fell annually from 2011-2012 to 2017-2018, with the last class of borrowers taking out $15.7 billion less than their predecessors five years earlier.

Still, the cumulative debt has continued to climb, thanks in part to delinquency and default. About 11% borrowers were at least 90 days late on their payments — and that was before the coronavirus pandemic wreaked havoc on the economy in 2020 and 2021.

The dire situation has drawn the attention of voters and their government. Starting with Sen. Bernie Sanders (I-Vt.) and his proposed 2017 College for All Act, progressive politics have become inseparable from ambitious calls to make higher education debt-free.

Recent political proposals to reverse the history of student loans
Current and future students ● Increase Pell Grants
● Make public schools tuition-free
● Invest in Minority Serving Institutions
● Adopt alternative income-share agreements
Student loan borrowers ● Streamline federal repayment plans
● Improve existing federal loan forgiveness programs
Cancel $10,000 to $50,000 in debt per borrower
● Ease limits on discharging education debt in bankruptcy court
Fully privatize the student loan industry

How to avoid repeating the history of student loans

It may feel like you’ve been stuck with your student loan since the beginning of time. Hopefully, with a review of the history of student loans, you can now see that a lot of dots were connected in Washington, D.C. and beyond, likely before you were even born.

Recent history of student loans: How we got where we are today
1980s: Government severely cut subsidized higher education funding With less government funding for higher education, college tuition has increased at twice the rate of inflation and significantly faster than home and consumer prices
1990s: Unsubsidized federal loans were made widely available Household incomes haven’t kept pace due to macroeconomic factors that shrunk the size of the middle class
2000s: Proliferation of online, for-profit and sometimes predatory colleges Students and families have remained dead-set on college as a pathway toward improving their socioeconomic status, borrowing against their projected future income

Fortunately, there’s something you can do to avoid repeating our nation’s ugly history of student loans — actually, there are a few things.

If you or someone in your family is attending college in the future, consider these strategies:

  • Save up in advance. The sooner you can start saving, the better — but it’s also never too late to get going. Socking away even nominal amounts each month can put your family in a position to pay a greater share of college costs out of pocket.
  • Apply for gift aid ad nauseum. Don’t wait until your senior year of high school or until you’ve stepped on a college campus to begin applying for gift aid that doesn’t need to be repaid. You can seek scholarships at a young age and start investigating your state grant options too
  • Choose an affordable college. Before locking eyes with a prestigious private school on the opposite coast, consider that a two-year pit stop at a community college in your own backyard could potentially halve your higher education spending. Plus, you can always transfer to that more expensive four-year school once you have a clearer idea of what you’re most interested in studying.
  • Cut your secondary expenses. Even if you’ve settled on a school with a lower, perhaps in-state, tuition rate, look for other opportunities for savings. Living at home (not the dorms), skipping the meal plan (and cooking more), buying used textbooks (or borrowing them) and taking public transportation (instead of driving) are all ways to save hundreds — or even thousands of dollars — per semester.
  • Only borrow what you can afford. No one expects you to have a crystal ball, but you can project your future income using resources like the Bureau of Labor Statistics and ensure you only borrow what you could reasonably expect to repay upon entering the workforce. That will keep your debt-to-income ratio from getting out of hand.
  • Make in-school payments. If you do need to borrow money for school, don’t follow the crowd and completely defer repayment until you’ve graduated. Even making interest-only payments, which might equate to skipping a dinner out or new clothes each month, can keep your balance from ballooning while you’re busy studying.

Those are all things you can control, at least to a degree. Of course, there are also all kinds of potential new legislation that could ease or impede your ability to attend college without overborrowing.

While student loan forgiveness proposals have drawn headlines, many experts contend that it won’t end the cycle of debt. Forgiving an ex-student’s debt, the argument goes, does nothing to prevent the current or future student from ending up in the same predicament.

That’s where tuition-free college platforms come into play. President Joe Biden pitched tuition-free community college less than four months into his administration. Before that, Sen. Sanders helped start the national discussion around tuition-free four-year colleges.

These proposals could reshape the history of student loans and positively impact your future. So, the next time you hear that Congress will be debating an education issue on the floor of the Senate or the House, make sure your voice is heard.

Interested in refinancing student loans?

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LenderVariable APREligible Degrees 
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4.13% – 7.39%3Undergrad
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2.49% – 7.99%4Undergrad
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2.49% – 7.99%5Undergrad
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3.24% – 8.24%6Undergrad
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2.48% – 7.98%Undergrad
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1.74% – 7.99%7Undergrad
& Graduate

Visit Purefy

3.69% – 9.92%8Undergrad
& Graduate

Visit Citizens

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1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 6, 2022.

2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $9 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.


This information is current as of April 29, 2021. Information and rates are subject to change without notice.

3 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 09/09/2022 student loan refinancing rates range from 4.13% APR – 7.39% Variable APR with AutoPay and 2.99% APR – 9.93% Fixed APR with AutoPay.

4 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

You can choose between fixed and variable rates. Fixed interest rates are 3.99% – 8.74% APR (3.74% – 8.49% APR with Auto Pay discount). Starting variable interest rates are 2.74% APR to 8.24% APR (2.49% – 7.99% APR with Auto Pay discount). Variable rates are based on an index, the 30-day Average Secured Overnight Financing Rate (SOFR) plus a margin. Variable rates are reset monthly based on the fluctuation of the index. We do not currently offer variable rate loans in AK, CO, CT, HI, IL, KY, MA, MN, MS, NH, OH, OK, SC, TN, TX, and VA.

5 Important Disclosures for Navient.

Navient Disclosures

You can choose between fixed and variable rates. Fixed interest rates are 3.99% – 8.74% APR (3.74% – 8.49% APR with Auto Pay discount). Starting variable interest rates are 2.74% APR to 8.24% APR (2.49% – 7.99% APR with Auto Pay discount). Variable rates are based on an index, the 30-day Average Secured Overnight Financing Rate (SOFR) plus a margin. Variable rates are reset monthly based on the fluctuation of the index. We do not currently offer variable rate loans in AK, CO, CT, HI, IL, KY, MA, MN, MS, NH, OH, OK, SC, TN, TX, and VA.

6 Important Disclosures for SoFi.

SoFi Disclosures

Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 3.24% APR to 8.24% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

7 Important Disclosures for Purefy.

Purefy Disclosures

Purefy Student Loan Refinancing Rate and Terms Disclosure: Annual Percentage Rates (APR) ranges and examples are based on information provided to Purefy by lenders participating in Purefy’s rate comparison platform. For student loan refinancing, the participating lenders offer fixed rates ranging from 2.73% – 7.99% APR, and variable rates ranging from 1.74% – 7.99% APR. The maximum variable rate is 25.00%. Your interest rate will be based on the lender’s requirements. In most cases, lenders determine the interest rates based on your credit score, degree type and other credit and financial criteria. Only borrowers with excellent credit and meeting other lender criteria will qualify for the lowest rate available. Rates and terms are subject to change at any time without notice. Terms and conditions apply.  

8 Important Disclosures for Citizens.

CitizensBank Disclosures

Education Refinance Loan Rate Disclosure: Variable interest rates range from 3.69%-9.92% (3.69%-9.92% APR). Fixed interest rates range from  4.49%-10.11% (4.49%-10.11% APR). 

Undergraduate Rate Disclosure: Variable interest rates range from 6.39%- 9.60% (6.39% – 9.60% APR). Fixed interest rates range from 6.58% – 9.79% (6.58% – 9.79% APR).

Graduate Rate Disclosure: Variable interest rates range from 3.69% – 9.16% (3.69% – 9.16% APR). Fixed interest rates range from 4.49% – 9.35% (4.49% – 9.35% APR).

Education Refinance Loan for Parents Rate Disclosure: Variable interest rates range from 3.69%- 9.09% (3.69%- 9.09% APR). Fixed interest rates range from 4.49% – 9.28% (4.49% – 9.28% APR).

Medical Residency Refinance Loan Rate Disclosure: Variable interest rates range from 3.69% – 9.16% (3.69% – 9.16% APR). Fixed interest rates range from 4.49% – 9.35% (4.49% – 9.35% APR).