A Credit to College? The US Student Loan Scheme and the Stratification of Inequality

Literature in support of student loan schemes has long advocated for the distinction between private benefits to students and external benefits to society for higher education. The theoretical argument largely has been one-sided in that advocates for student loans emphasized student loans as a subsidy to the costs for higher education as private benefits to students. This paper considers whether student loan schemes have worked in the opposite direction as a shift of costs for higher education''s external social benefits to enrolled students. Using the US student loan scheme in historical context, practical aspects of institutional autonomy, administration and accountability indicate that one unintended consequence of student loans is an allocation of the higher education costs for external benefits to enrolled students and, in particular, low-income students who qualify for “targeted” subsidies. The paper concludes with possible approaches to further investigations of financial aid policies and administration in the United States.