Around eight million Americans signed up last weekend for the Biden administration’s student loan forgiveness plan during a beta test of the online application. On this week’s episode of Now & Then, “Educating a Nation: Higher Ed in Peril,” Philadelphia Inquirer national opinion columnist Will Bunch joined Heather Cox Richardson and Joanne Freeman to discuss the long road to the current crisis, from the “social rank” of 1700s colleges to Bunch’s research about Reagan-era rollbacks of college assistance programs, often led by budget czar David Stockman. A closer look at Stockman’s first volley against loan eligibility reveals a tangled web of personal contradictions, ideological certitudes, and forebodings over the contraction of the social safety net.
Upon President Reagan’s inauguration in January 1981, his new Director of the Office of Management and Budget, 34-year-old David Stockman, quickly became a lightning rod and prime enforcer for “Reaganomics,” the set of budget reduction proposals and tax cuts that buoyed Reagan’s small government ideology.
Stockman was a one-time anti-war activist who had committed to a free market orientation and won two terms as a Michigan Congressman before taking the OMB post. In February 1981, Stockman began circulating to Republican leaders a 145-page “black book” detailing his proposed cuts to federal social services and financial assistance programs. Stockman highlighted the risks of each potential area of cuts.
In a section of the Black Book titled “Student Loans and Pell Grants,” Stockman wrote, “Probable reaction: College costs are a major concern to middle-income families, who would react negatively to any reduction in federal support for higher education. Higher education institutions whose students receive substantial amounts of federal student assistance benefits would also protest strongly.”
Notwithstanding the anticipated blowback, Stockman and Republican congressional allies pushed through $338 million in cuts from the Pell Grant initiative, which had been instituted in 1965 as part of the Higher Education Act and offered federal financial aid for low-income college students, usually without the need to pay back the grant. The reductions, which partially took the form of stricter eligibility requirements, were slated to cut some 300,000 students from the grant program.
Stockman and company also moved to narrow the eligibility requirements for another Higher Education Act innovation, Guaranteed Student Loans (GSLs). The GSL program had allowed students to take out $2,500 loans from private banks at a government-subsidized 9% interest rate – far lower than the market rate of 15%. In addition to covering the reduced interest rate, the government also guaranteed repayment to the banks. Under the Stockman plan, only students from families making under $30,000 would be eligible for GSLs and applicants would have to pay an enrollment fee.
The Reagan administration also hiked interest rates to 14% on an alternative plan initially passed during the Carter administration by which parents of incoming college students could take out loans on behalf of their children. In other words, the government would hold less of the debt and the borrowers would likely find themselves in deeper debt to private lenders.
Stockman blamed his cuts on the 1978 Middle Income Assistance Act, which had lifted the initial $25,000 cap for GSL loans and had opened the program to anyone who wanted to take out the money. In 1980, the number of outstanding loans skyrocketed from 2 million to 3.6 million. The explosion in borrowing, Stockman argued, was likely the result of wealthier Americans taking out student loans to benefit from the low interest rates, while allowing their savings to accumulate in higher-interest accounts.
“The GSL has probably allowed middle-and-upper-income families to maintain their savings and borrow more cheaply than they otherwise could by using these loans to finance their children’s education,” Stockman wrote in a working paper about his loan plan.
The cuts were a small piece of Stockman’s overall spending reduction mission, some $35 billion in cuts for the 1982 Fiscal Year. He pushed for 400,000 Americans to be kicked off welfare, for 875,000 Americans to lose food stamp benefits, and for one million American workers to lose extended unemployment benefits.
Stockman’s attacks on college loans, however, quickly stuck in the minds of journalists. As the Black Book made its rounds, Boston Globe reporter Curtis Wilkie on February 19th, 1981 published a bit of a bombshell about Stockman’s own loan history. Stockman, who went to college at Michigan State University, took out a $500 church loan during his senior year in 1968 from the Edgewood United Church in East Lansing. The money covered half of his first-year $1,000 tuition to attend Harvard Divinity School – a graduate program that allowed him to defer the Vietnam War draft.
The church’s longtime minister, Truman Morrison, a Civil Rights activist and passionate scholar, revealed that the loan was, in sharp contrast to Stockman’s own proposals, “free and easy” – no interest and no time limit for repayment.
Morrison, in fact, could not find any record that Stockman repaid the loan, but said he believed that Stockman had “lived up to his obligation” before his 1976 election to Congress. He argued that the media attention was overblown. “David’s case was no different from many others. It bothers me that people are going at David on the basis of something as flimsy as this.”
Stockman’s spokesman, Edwin Dale, told the Globe that Stockman delayed his loan repayment because he was dealing with other “enormous college debts.”
Stockman’s old pastor may have forgiven Stockman for the outstanding loan, but he had broader misgivings about his one-time pupil. Morrison had written his University of Chicago Divinity School thesis under the guidance of famed theologian Reinhold Neibuhr, and had often discussed Niebuhr’s ethical concepts with a young Stockman. Morrison let loose to Sidney Blumenthal in a March 15th, 1981 New York Times Magazine profile of the young OMB Director.
“’David missed the point on Reinhold Niebuhr, who was a socialist with qualifications and knew better than to be unskeptical about concentrated economic power,” Morrison told Blumenthal. “Niebuhr felt that no matter how immoral we are, we are motivated by more than self-interest.”
“I’m very worried, frankly, about what I’m learning about David,” Morrison continued. “He thinks of himself as hard-nosed and tough-minded, but there’s something naive about him. Compassion. That’s what I’m looking for from David. I wish David and I had done more theological investigations than we did.”
Morrison put things more bluntly to The Washington Post: “David was always thinking about David a great deal of the time. He is very narcissistic. David has always been very intent on his own personal advancement.”
Stockman did find some ardent defenders in the media. An op-ed in the Atlanta Constitution argued that the accessibility of GSLs under the Middle Income Assistance Act invalidated any comparisons to Stockman’s church loan. “That’s not the kind of help that was available to young Stockman in the late 1960s,” the op-ed declared. “And the kind of help now available is more than many families need and more than the government can afford. The tightening up of the student loan program should be undertaken, whatever anybody may think of David Stockman for recommending it.”
In the following months, legislators, students, and parents joined Morrison in expressing concern over the impact of the Stockman-fueled loan cuts – particularly for those Americans making just over $30,000 per year, the new cut-off for GSLs.
On October 1st, 1981, the day that his budget cuts took effect, Stockman appeared before the House Budget Committee to defend his program. The Committee hit Stockman particularly hard on his Pell Grant cuts. Illinois Democratic Representative Paul Simon led the charge. Simon, famed for his horn-rimmed glass and bowties, had been a major force in the debates around the Middle Income Assistance Act and generally went to bat for liberal populist causes, even as he practiced a moderate brand of economic restraint.
“I can’t see that as anything but a temporary savings that does major long-range damage to the Nation,” Simon told Stockman.
Stockman responded defiantly: “I do not accept the notion that the Federal Government has an obligation to fund generous grants to anybody that wants to go to college. It seems to me that if people want to go to college bad enough, then there is opportunity and responsibility on their part to finance their way through the best they can.”
Simon replied with a sweeping defense of the American social safety net: “I guess there is a fundamental difference in philosophy here, because I think most Americans agree that…the GI Bill after World War II, which would go contrary to your policy, was one of the greatest investments this Nation has ever made in itself. And I think most economists would agree.”
In late October 1981, syndicated Washington political columnist team Jules Witcover and Jack Germond uncovered new information about the Stockman church loan kerfuffle. Apparently, Stockman had repaid the loan only after the initial Globe coverage emerged. Stockman had missed six letters from the Church reminding him of the outstanding debt. The column appeared in various papers under such titles as “He Who Casts the First Loan” and “A Loan Lecture.”
“Symbolism is important in politics,” Witcover and Germond sermonized. “A man who has taken 13 years to pay off a $500 interest-free student loan, after repeated requests to do, considering the money he makes may not be ideally positioned to lecture others on what they should do if they ‘want to go to college.’”
Stockman continued to battle for tightening student loan accessibility – and for creating more onerous mechanisms for paying off the debt for those who were still eligible – until his 1985 resignation as OMB Director. The struggle for American politicians to define the balance between budgets and access to higher education continues unabated, even as some students get a modicum of relief from their own higher education debts.
For much on Stockman’s crusade and the broader move away from accessible higher education, Read Will Bunch’s fascinating After the Ivory Tower Falls: How College Broke the American Dream and Blew Up Our Politics―and How to Fix It.
And head to the Twitter account of Now & Then Editorial Producer David Kurlander for supplemental archival threads on each Time Machine piece: @DavidKurlander.
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