United States higher education is in the midst of major financial and cultural upheaval. Campus protests erupted in Spring 2024 over Israel’s response to Hamas’s 2023 incursion into Israel. Earlier, Congress grilled presidents of Ivy League universities about antisemitism on their campuses, forcing some presidents to resign. President Trump has threatened loss of federal research grants if institutions do not properly handle such campus disruptions.
Meanwhile, more families question the return on investment in college education, declining births and fertility rates portend fewer college-age Americans, anecdotes persist about Women’s Studies graduates employed as Starbucks baristas, and blue-collar plumbers and electricians often earn incomes as high or higher than those in more prestigious white-collar occupations (with no college debt).
How American Students Attended College before 1965
Before 1965, no one assumed that all high school graduates would expect to attend college. For generations, those who did attend did so at their own (or their parents’) expense, some assisted by institutional scholarships. Because tuition was modest—particularly at public institutions—parents did not have to choose among invading their retirement savings to pay college expenses, or requiring children to forgo college, or expecting students to work their way through college.
Higher education institutions were long expected to serve in loco parentis—responsible for overseeing college students who were no longer under the watchful eyes of parents. Colleges’ responsibilities included curfews, parietals, sex-segregated dormitories, and an academic curriculum suitably designed for their students. Parietals and dormitory policies almost entirely disappeared by the mid-1960s and academic graduation requirements have greatly loosened over the years, typically responding to students’ demands.
The federal government offered student financial aid after World War II with G.I. educational benefits for veterans, though not without objections from educational leaders. Presidents James Bryant Conant of Harvard and Robert Maynard Hutchins of Chicago vocally opposed the G.I. program, warning that requiring them to accept older (and sometimes even married with children !) students would disrupt campuses. Hutchins of Chicago predicted that, “Colleges and universities will find themselves converted into educational hobo jungles. And veterans...will find themselves educational hobos.”
At President Roosevelt’s urging, Congress passed the G.I. Bill of Rights in June 1944. Contemporaneous accounts reveal that the program was funded primarily to avert a postwar recession when unemployed returning soldiers flooded labor markets, as they had after World War I.
Passage of the Higher Education Act of 1965
The mid-1960s saw the alignment of factors that led to passage of the Higher Education Act (HEA) of 1965. President Lyndon Johnson declared the War on Poverty after his1964 election and began creating the Great Society with major pieces of legislation such as Medicare, Medicaid, and the Civil Rights Act of 1964. HEA—a rather revolutionary new law that brought about major changes in Americans’ patterns of college attendance—seemed a suitable addition as the baby boom wave was approaching college age.
Educational researchers had demonstrated that college graduates experience higher lifetime earnings than non-grads, and began recommending that more Americans should attend college and earn baccalaureate degrees. HEA targeted groups that had not traditionally attended college—first-generation college-goers, low-income and minority students. The notion of college for all, regardless of income or zip code, became for the first time enshrined in federal statute.
Congress knew that subsidies were necessary to encourage this college attendance, and debated which of two strategies would be more successful: 1) award federal aid directly to institutions with the proviso that they expand enrollments and keep tuition low; or, 2) award aid directly to students to allow them to “vote with their feet” and choose which of the several thousand institutions to attend.
Congress ultimately chose to award federal funding directly to students, incorporating programs such as Basic Educational Opportunity Grants (BEOG) (later named Pell grants in honor of Senator Claiborne Pell of Rhode Island ), Supplemental Educational Grants (SEOG), college work-study, and guaranteed student loans. These means-tested programs were to be administered by institutions themselves, with congressionally-appropriated funding.
But everyone—students, parents, institutions, and government—naively assumed the new programs would succeed seamlessly. No one questioned whether new enrollees would all be sufficiently prepared for college work, whether collegiate standards would necessarily erode in order to assure degree completion, or whether college grads would earn sufficiently higher incomes to compensate them for foregone earnings while attending college and to repay student loan debt after graduation. Nor did anyone anticipate student attrition as inadequately-prepared students dropped out before completing degrees. Significantly, no one questioned whether direct student financial aid might exert upward pressure on tuition levels in outlying years, as has in fact occurred.
Amid Great Society enthusiasm during the 89th Congress, elected with Lyndon Johnson, none of these potential outcomes mattered. The nation was embarking on a federal policy of college-for-all, assisting young people to earn higher lifetime incomes—and thus pay higher taxes—all subsidized by federal student financial aid. This positivity led to institutional expansion, increased enrollments among targeted student groups, and general satisfaction all around.
Surprising little was heard from higher ed institutions. Yet they might reasonably have objected to the costs they would incur in recruiting and admitting potentially ill-prepared applicants. Everyone assumed that institutions would accommodate additional students, offer any necessary remedial classes to unprepared students, and expand student counseling services for those who were unfamiliar with higher ed expectations and behaviors. Thus began an era of “administrative bloat” resulting from institutions’ robust finances, and thus also began a new variant of “industrial policy.”
A New Variant of Industrial Policy with 1965 Higher Ed Act
The US has not historically implemented industrial policy as extensively as have other countries such as Japan. Sometimes known as “picking winners and losers,” industrial policy is often considered government favoritism toward industries such as green energy and electric vehicles that can further a country’s manufacturing sector and create new jobs. Industrial policy has not typically targeted service industries such as education. HEA was, however, effectively a form of industrial policy, government intervention aimed at shaping the economy and building human capital through tools such as these subsidies and tax incentives:
- Federal tax exemption for non-profit colleges and universities;
- Direct HEA student subsidies, including means-tested Pell Grants and federally-guaranteed student loans;
- Provisions in the US tax code to reduce net costs of college attendance: education credits, 529 plans, tax exemptions for interest on US savings bonds used for educational expenses, tax deductions for interest paid on student loans, exclusion of canceled student loan balance from taxable income, and tax deductions for work-related education;
- Subsidies to institutions when they incorporate student loans into financial aid “packages” for students, which conveniently offers institutions the opportunity to increase tuition revenue and shift cost burdens to students after graduation
Where the Higher Industry Finds Itself Today
Higher education’s halcyon days of ever-increasing federal funding, expanding institutions, enrollments, and administrative infrastructure are waning and ultimately ending. How does one assess the past six decades of higher ed industrial policy, and the industry’s trajectory looking ahead?
The past sixty years of naively mistaken policy assumptions and failed programs reveals that, despite the good intentions of the 1965 HEA, it has provided a lesson in how not to help the nation, its collegiate institutions, and deserving young people to succeed.
HEA has also forged a co-dependency between the federal government and the higher education industry, given the industrial policy forged in the legislation. The higher ed establishment and the federal government are today mutually dependent on each other.
By altering the very terms on which Americans attend college, HEA can be said to bear the blame for much of what’s wrong with the higher ed industry today—large student loan debt that may never be repaid, declining academic standards, replacement of educational missions by indoctrination and student activism, abandoned in loco parentis for a more free-wheeling cultural environment.
To complicate the matter, federal student loans are now available to graduate students, encouraging institutions to create new master’s programs in the humanities that attract left-leaning students. This can exacerbate tendencies and the predominance of far-left faculty. Left-leaning graduate student teaching assistants, moreover, can influence the undergraduates whom they teach.
Congress must step in with major reforms of higher ed legislation, including repeal of some statutes. For example, the 2010 creation of the federal student loan program that replaced the original Guaranteed Student Loan program should probably be repealed or significantly altered.
But Americans’ aspirations of earning a college degree remain strong. Altering this would require a cultural shift. And the $64 question: Will future presidents override Trump’s higher ed initiatives and attempt to restore HEA’s industrial policy?
