The History of Student Loans and How It Affects You Today

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Maybe it feels like your student loan servicer robs your bank account on a monthly basis, but imagine how 13th-century Oxford University applicants felt.

Using the first documented student loan system in 1240, aspiring scholars had to deposit their valuable possessions — anything from precious metal cutlery to handmade animal-skin books — in wooden chests to secure educational funding.

About 600 years later, in 1838, Harvard University students didn’t need collateral to prove their neediness. The Ivy League school offered zero-interest loans to students who could not afford to attend.

What followed in the U.S. was nearly 200 years of changes to how students pay for a higher education. By now, you’re likely familiar with the results.

As of 2017, there is about $1.4 trillion in national student loan debt, shared by 44 million borrowers. The average 2016 graduate left school $37,172 in the red.

With how far we’ve come, it’s worth asking how the heck we got here. Here’s a look at the history of student loans in the U.S., and how it matters.

10 events that shaped student loans in America

1944: The G.I. Bill

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 on June 22. As part of the bill, veterans were given up to $500 per school year to help cover educational and living costs. The 1952 Veterans Readjustment Assistance Act extended these benefits to Korean War veterans.

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

1958: The National Defense Education Act

Consider this one spurred on by Sputnik, the then-Soviet Union’s orbiting satellite. For the U.S., a loss in the so-called Space Race was enough to move forward on federal funding for higher education.

NDEA student loans were meant to target the study of science, math, and foreign languages. It undoubtedly had more general application; from 1960 to 1970, 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 to make college more accessible for students. On Sept. 30, 2017, however, the Perkins Loan Program expired.

1965: The Higher Education Act

Signed on Nov. 8 by former President Lyndon B. Johnson, this law gave federal funds to state schools for, in part, low-interest loans. The Student Loan Marketing Association (more famously known as Sallie Mae), was born in 1973 to service these loans.

So what? The legislation has been amended and reauthorized eight times by the U.S. Congress and continues to support higher education. Sallie Mae has since transitioned from a federal loan servicer to a private lender.

1972: The Basic Educational Opportunity Grant

A significant moment in the history of student loans was The Basic Educational Opportunity Grant. This law was renamed in 1980 for Senator Claiborne Pell, a Rhode Island Democrat who led the effort to get it passed. Pell Grants were designed to offer gift aid to needy students.

So what? Still in existence today, the maximum award for 2017-2018 was set at $5,920. For students with low-income backgrounds, Pell Grants offer financial aid without adding on student debt.

1992: The Higher Education Amendments of 1992

In the course of reauthorizing the Higher Education Act of 1965, this 1992 legislation resulted in two key milestones: the creation of the Free Application for Federal Student Aid (FAFSA) and the addition of unsubsidized Stafford loans.

So what? For many students, the FAFSA is a key element to securing financial aid for higher education. Meanwhile, unsubsidized Stafford loans are another way for students to fund their college years.

2001: The Economic Growth and Tax Relief Reconciliation Act of 2001

This law, signed by former President George W. Bush, improved upon legislation former President Bill Clinton signed in 1997.

Under Clinton, only the first five years of interest payments on student loans were tax deductible. Bush removed the five-year rule.

So what? Today, the Student Loan Interest Tax Deduction helps qualifying taxpayers deduct up to $2,500 of interest payments each year. This helps make repaying student debt a little more affordable.

2007: The College Cost Reduction and Access Act

Also signed by Bush, this landmark legislation made student loan repayment more affordable with two key additions: Income-Based Repayment (IBR) and Public Service Loan Forgiveness (PSLF).

So what? IBR makes student loan repayment more affordable by capping payments and forgiving the debt after 20 or 25 years of repaymentPSLF, meanwhile, forgives loans after 10 years of repayment for individuals working for a qualifying employer.

2010: The Health Care and Education Reconciliation Act of 2010

This act eliminated the Federal Family Education Loan (FFEL) Program, requiring that all new federal loans be Direct Loans. At the time, FFEL was the second-largest loan program for higher education.

So what? The act helped fund Pell Grants and cut IBR monthly payments from 15 percent of discretionary income to 10 percent.

2011: The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

In the wake of the Great Recession and the state budget cuts that ensued, former President Barack Obama signed legislation that established the Consumer Financial Protection Bureau (CFPB).

So what? The CFPB is 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 and offers essential education to consumers.

2015: Revised Pay As You Earn

At Obama’s direction, the Department of Education launched the Revised Pay as You Earn (REPAYE) Plan. Also in 2015, Obama unveiled the Student Aid Bill of Rights.

So what? REPAYE expanded on the original Pay As You Earn (PAYE) Plan. It allowed an additional 5 million Direct Loan borrowers to cap student loan payments to 10 percent of their discretionary income. The plan also extended protections to borrowers with Direct Loans. 

Why the history of student loans matters

As student debt balloons in the U.S., understanding student loan programs and your repayment options is important. Knowing how you can better manage your student loans can help you pay down your debt faster or free up money for other financial obligations.

Keep tabs on new student loan programs and legislation that can affect any repayment programs you use. That way, you’re never surprised when changes to your repayment plans roll through.

Interested in refinancing student loans?

Here are the top 6 lenders of 2021!
LenderVariable APREligible Degrees 
1.89% – 5.99%1Undergrad
& Graduate

Visit Splash

1.99% – 5.64%2Undergrad
& Graduate

Visit Earnest

1.99% – 6.84%3Undergrad
& Graduate

Visit CommonBond

1.91% – 5.25%4Undergrad
& Graduate

Visit Lendkey

2.25% – 6.53%5Undergrad
& Graduate

Visit SoFi

2.17% – 4.47%6Undergrad
& Graduate

Visit PenFed

Check out the testimonials and our in-depth reviews!
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 Feburary 1, 2021.


2 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


3 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. ‍All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.


4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com 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 LendKey.com. 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 LendKey.com 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 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.


5 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: 1. Fixed rates from 2.99% APR to 6.99% APR (with AutoPay). Variable rates from 2.25% APR to 6.53% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.12% plus 2.38% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. 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. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The discount will not reduce the monthly payment; instead, the interest savings are applied to the principal loan balance, which may help pay the loan down faster. Enrolling in autopay is not required to receive a loan from SoFi. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score.Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

6 Important Disclosures for PenFed.

PenFed Disclosures

Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.99%-5.15% APR and Variable Rates range from 2.17%-4.47% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.