Student Loans 101: History-Why Uncle Sam Is Your Banker
Calls to improve science and technical education led President Dwight Eisenhower to establish a low-interest college loan program through the National Defense Education Act of 1958. The loan dollars came directly from the government.
Then came Lyndon Johnson’s “war on poverty.”
Student loans got a major boost in 1965 as part of the president’s Great Society initiatives. The Higher Education Act expanded loans as well as grants to help needy students, contributing to the era’s college boom. It also changed the way the federal loan program was financed. Instead of using government money directly, the loans would be made by bankers. But the government guaranteed that if students defaulted, the U.S. government would cover the tab.
Lawmakers liked that approach because outstanding loans wouldn’t show up on the government’s books as red ink.
And that led to the birth of Sallie Mae.
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