High Tuition Costs Mostly Stem From the Omnibus Budget Reconciliation Act 1993
7th June 2022
Thank you, Bill Clinton. (And George H.W. Bush, who fumbled the ball so badly.)
Up until 1993, the federal government merely guaranteed/backed student loans that private lenders gave. This meant that only in the case of someone defaulting on their loan would the government be on the hook, stepping in and paying the college what’s owed.
This amendment completely overhauled that system, making it so that for the vast majority of student loans, the federal government directly made the loans to students. More specifically, the federal government pays the universities/colleges up front, and the student then owes the government that money.
This represented a large shift in the alignment of incentives. When the loans come from the federal gov, there’s much less pressure on schools to compete on price. This is especially true since “increasing max student loan size => making college more accessible to everyone” is a political argument that both major parties benefit from in terms of optics.