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“A Strictly Business Basis”: Early 20th Century Perspectives on Student Loans

The map shows the United States of America. The colleges participating in the Harmon Foundation scheme are located primarily on the East Coast and in the Midwest. The caption in the image reads "map showing distribution of Harmon loan funds."

A 1932 map showing colleges involved in the student funding program of the the Harmon Foundation, founded by the philanthropist William E. Harmon in 1922. The foundation argued its system of providing primarily small loans, made on “business-like terms,” would remove the stigma of “charity” from higher education in the early 20th century. Image courtesy of HathiTrust.

Recently, former New York mayor Michael Bloomberg’s $1.8 billion donation to Johns Hopkins University to provide scholarships for middle and low-income students sparked a slew of headlines. Announcing the gift, Bloomberg harkened back to an earlier era, when he was able to afford a degree at Johns Hopkins through a combination of a federal student loan and an on-campus job. At that point, Bloomberg, who graduated in 1964, noted “my Hopkins diploma opened up doors that otherwise would have been closed, and allowed me to live the American dream.”

Though historians such as Stephanie Coontz have pointed to the “nostalgia trap” that underlies claims of unlimited promise and prosperity in the America of the 1950s and early 60s, Bloomberg’s announcement illustrates how wistful rhetoric continues to influence commentary on higher education. Despite intense debates about college costs and the burden of student loan debt, which stands at more than $1.5 trillion in the U.S., there have been few efforts to historicize the use of student loans. Histories of U.S. higher education often move smoothly from the introduction of private student loans at elite colleges to a focus on the federal government’s role in providing student aid with the G.I. Bill in 1944 and the National Defense Education Act of 1958, which made U.S. government loans available to civilians.[1]

However, the years between World War I and World II, which one historian has termed an era of “mass higher education,” offer striking parallels to the fraught debate over how students pay for college today. In the interwar period, private philanthropists offered an array of loans at variable interest rates, sometimes ignoring warnings about how students would repay them. Much like contemporary discussions of for-profit colleges’ focus on recruiting students of color, activists in the 1920s raised concerns about how private philanthropy could limit options for black students by prioritizing funding for industrial education programs such as the Tuskegee Institute. While appeals such as Bloomberg’s refer to a benign past where students could easily afford a college degree, a closer look at newspaper accounts and government records reveals a more complex picture that was mindful of growing concerns about education as a lucrative, profit-making enterprise.[2]

“Just when the goal of a college education has become an almost universal ambition of American parents for their children, the cost of a college course has climbed clear out of sight of ordinary families,” Iowa philanthropist E.W. Davis wrote in 1929. In an article published a month before the catastrophic Wall Street crash, he proposed his own “Davis Plan” as a solution. He recommended combining private student loans, offered at a variable interest rate that increased after students completed their degrees, with work experience. Despite the turmoil of the Depression, college attendance in the interwar period grew rapidly. In 1940, 9.2% of people between the ages of 20 and 24 had completed some college and 3.3% had completed at least four years of college. A growing number of students also fell outside this age group, much like non-traditional students today. In 1940, 4.6% of people over 25 had completed at least four years of college.[3]

In this period, private student loan plans like Davis’s were a commonly-offered solution to increasing college attendance at a variety of different types of institutions. They were proposed by prominent philanthropists such as John D. Rockefeller and William E. Harmon, touted on the basis that paying off an education over time “in a businesslike manner,” as a government pamphlet noted in 1929, would make students more fiscally responsible. “We are living in what appears to be the ‘installment age’—where products of any sort can be bought on the installment plan—so much down and so much per month…Higher education is no exception to this rule,” the Bureau of Education added. The 143-page pamphlet, which advertised a range of private loans, scholarships, and grants available at “junior colleges,” professional schools, and four-year institutions, counselled students that a college education paid over time would yield more return than any other “passing luxuries” purchased through regular payments. Many sources praised student loans as removing the stigma of “charity” from higher education.

An early, striking example is in the Negro World, the newspaper of Marcus Garvey’s United Negro Improvement Association. In July 1924, the paper reported that students at the Howard University School of Medicine were eligible to apply for loans from the Harmon Foundation of $250 per year or $500 in total. Beginning a year after graduation, the paper noted, students would pay $10 per month plus 6 percent interest. “It is the desire of the foundation to place the financing of higher education on such a secure business basis that any student who desires may obtain his college or university training without the feeling of charity or paternalism…in the very act of repaying his debt the borrowing student is proving his financial integrity to the world at large,” the paper added.[4]

The article’s tone is somewhat unusual, as other contributors and editors to the Negro World, including radical activist Hubert Harrison, wrote critically about the financing of education for African American students. In columns and essays, they questioned both the intent of white philanthropists, such as Rockefeller’s General Education Board, and the provision of taxpayer-funded education for black students. “The General Education Board, which disburses millions of dollars annually in the South for education has, so far, given to forty-one Negro schools the sum of $464,015,” Harrison wrote in a 1912 essay. “Only in two instances has any money been given to a real college. Practically all of it went to the labor caste schools…this is what the richest country in the world offers to ruthlessly exploited people as a training for life.” The Caribbean-born autodidact offered self-education as an alternative solution, writing in 1920, “Go to school whenever you can. If you can’t go in the day, go at night. But remember always that the best college is that on your bookshelf…”[5]

While the Wall Street Journal described higher education as a “big business” in 1930, even the Harmon Foundation expressed some caution about the viability of private student lending as a business model. “Loans to the amount of $1,000 to one student . . . would seem a sound practice. A student who is worth helping at all should be ‘seen through’ and it is not conceivable that anything below $500 would be of much assistance to him during his four years of college life unless it be for emergency purposes,” a 1925 study published by the foundation noted. In this period, living expenses appear to have greatly outstripped tuition costs, a foreshadowing of warnings scholars have made in recent years about the limited amount of aid offered by federal Pell Grants to help students meet living costs and family obligations. Howard University, for which Harmon offered loans to medical students, charged $120 in tuition in 1929 while room and board was $267 per year. But in the late 1920s, the foundation continued making smaller loans, offering an average of 350 loans in amounts from $150 to $300 each year. In 1927-1928, according to the Bureau of Education, the foundation had an outstanding loan balance of $302,215, about $4.46 million when adjusted for inflation.[6]

A decade later, questions about students’ abilities to repay the loans remained paramount. “World events influence loan returns, for when France defaulted on its war debt to the United States, some students wrote in to the [Harmon] Foundation saying that they thought they were entitled to do the same thing!” education scholar Margaret Ruth Smith wrote in 1936. Reviewing the variety of options available to students, Smith concluded that the effectiveness of financial aid was questionable. “The policies of the administration of loans, scholarships, and fellowships in institutions of higher learning are chaotic to a degree that endangers their ultimate value,” she wrote.[7]

It is difficult to draw exact comparisons between this “chaotic” system and the picture of attending and paying for college as we see it today. However, some sources indicate that the skepticism expressed by Depression-era observers was not shared by college administrators even as the federal government took on a larger share of efforts to provide student aid. In 1958, the Wall Street Journal reported that college administrators were taking a rosy view of student debt. “The nation’s college students are fast heading deeper into debt—and most educators are delighted about it,” the paper reported. “More and more deans are tiring of what some call ‘the students who want a free ride,’ and are losing patience with competitive bidding for promising students.”[8]

The language used in many of these sources—“competitive bidding” and student loan “defaults”—seems startlingly contemporary. Decades before activists and scholars would routinely decry the corporatization of higher education, the Bureau of Education offered a clear-eyed summation in 1928 of “the advisability…of making the relationship between institution and student one of seller and buyer.” Now, as U.S. Education Secretary Betsy DeVos seeks to restore a controversial accreditor of for-profit colleges, reversing a crackdown on the industry by the Obama administration, further efforts to historicize the concept of student debt may offer a more nuanced picture of the varied ways Americans have debated how students attend and pay for college. In the 1928 report, the predecessor of the contemporary Department of Education noted—perhaps optimistically—that even according to proponents of student loans, financial aid should be “administered in a way designed to make benefactions safe, if not profitable.”

Max Lewontin holds a master’s degree in history from King’s College London. His research interests include black internationalism, print culture, transnational history and history of surveillance.

For more on the history of education in the U.S., click here.

[1] Stephanie Coontz, The Way We Never Were: American Families and the Nostalgia Trap (New York, 1992). For a recent effort to historicize student loans, see Elizabeth Tandy Shermer, “From Educator to Creditor in Chief: The American Presidency, Higher Education, and the Student Loan Industry,” in The President and American Capitalism Since 1945, ed. Mark H. Rose and Roger Biles (Gainesville, 2017), 123-147. For a history of U.S. higher education which does not consider the interwar period, see Matthew B. Fuller, “A History of Financial Aid to Students,” Journal of Student Financial Aid, 44 (no. 1, 2014), 42–68.

[2] Roger L. Geiger, The History of American Higher Education: Learning and Culture from the Founding to World War II (Princeton, 2015).

[3] E.W. Davis, “Help College Students to Help Themselves,” The Journal of Education 110, no. 6 (Sept. 2, 1929), 132.

[4] “Student Aid Works Well at Howard University,” The Negro World, Feb. 9, 1924, 5.

[5] UNIA leader Amy Jacques Garvey’s regular “Our Women and What They Think” column also discussed unusual education opportunities, such as a proposal to repurpose U.S. Navy vessels as floating “university ships.” See “Old Government Ships Proposed for Welfare Work,” Negro World, Jan. 9, 1926, 7.

[6] “A ‘Big Business,’ Education’s Advance to that Class Indicated by Operations of University of Michigan,’ Wall Street Journal, Dec. 5, 1934, 4. L.J. Chassee, A Study of Student Loans and Their Relation to Higher Educational Finance (New York: Harmon Foundation, 1925), 114, quoted in Margaret Ruth Smith, “Student Aid,” The Journal of Higher Education 7 no. 1 (Jan. 1936), 31.

[7] Smith, “Student Aid,” 32 and 34.

[8] “Diplomas on the Cuff: Tuition Hikes, Slump Force More Collegians to Depend on Loans,” Wall Street Journal, June 3, 1958, 1.

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