Available at SSRN: https://ssrn.com/abstract=6378922
Abstract:
This Article examines why student loans became central to higher education finance in the United States and how they have undermined their own centrality over time. As the liberal constituency for funding redistributive social programs weakened in the 1970s, student loans enabled stable coalitions in favor of federal support for college affordability by bringing together lawmakers with divergent ideological commitments. Three features made student loans effective coalition stabilizers: their structure as demand-side subsidies that avoided federalism concerns and conflicts over university governance; their "political lightness" as credit programs that satisfied fiscal hawks and could be characterized as either government largesse or individual responsibility; and their creation of a sophisticated lobbying industry-including servicers, guaranty agencies, and for-profit colleges-that advocated for their perpetuation. However, stabilizing higher education finance through debt came with significant costs. The insider-driven politics of student loans involved corruption and fraud. The ideology of individual investment obscured structural labor market inequalities. The focus on demand-side subsidy contributed to a market dynamic that made higher education more unequal and more vocationalized. By the 2010s, these costs began to destabilize the very coalitions student loans had assembled: hidden costs became increasingly evident, scandals delegitimized insider politics, and growing borrower distress fueled an outsider politics against student debt. The COVID pandemic accelerated these dynamics, leaving the politics of higher education finance profoundly unstable. Drawing on scholarship from history, political science, sociology, economics, and legal studies, this Article provides a new framework for understanding the political economy of student loans-one that explains their endurance without treating them as inevitable. Along the way, the Article offers insights into the conditions under which higher education finance might be restabilized, whether through a reformed loan program or through a transition to more direct institutional funding and grants.
Student Loans: From Political Glue to Political Solvent
In Student Debt and the (De)Stabilization of Higher Education, Luke Herrine offers a sharp and—frankly—overdue reframing of how we got here. Student loans were not an accident, nor simply the product of cultural aversion to taxation. Instead, they were a political technology: a way to hold together a fragile coalition that otherwise could not agree on how (or whether) to fund higher education.
The brilliance of student loans, at least from a legislative perspective, was their ability to be all things to all people.
First, as demand-side subsidies, loans allowed Congress to fund students without deciding which institutions—or states—deserved support. That neatly sidestepped federalism fights, segregation battles, and public/private rivalries.
Second, loans carried what Herrine (borrowing from Sarah Quinn) calls “political lightness.” They looked cheap because they were expected to be repaid, and they could be sold simultaneously as government assistance and personal responsibility. In other words, fiscal hawks saw discipline, while progressives saw access.
Third, the system created its own lobby—servicers, lenders, guaranty agencies, and for-profit colleges—all of whom had a vested interest in keeping the spigot open.
For decades, this worked. Student loans stabilized higher education finance in an era when direct public funding was politically untenable.
But—as is so often the case in bankruptcy—what begins as a solution eventually becomes the problem.
The Costs Come Due
Herrine’s central insight is that the very features that made student loans politically durable also made them economically and socially corrosive.
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Insider politics bred corruption and fraud.
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“Human capital” rhetoric masked structural inequality.
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Debt-fueled tuition increases widened institutional and social disparities.
And most importantly, the system shifted risk onto borrowers—without providing meaningful exit ramps.
By the 2010s, the consequences were no longer hidden. Rising defaults, borrower distress, and repeated scandals eroded the legitimacy of the entire system. What had once stabilized higher education finance began to destabilize it, producing today’s volatile and litigation-heavy landscape.
COVID merely accelerated a process already underway.
Commentary: The Bankruptcy Angle—“Fiscally Light” Through Legal Fiction
From a bankruptcy perspective, there is an additional layer that the article hints at but does not fully develop—and it is a critical one.
Making student loans non-dischargeable (and eliminating any meaningful statute of limitations for federal loans) has been perhaps the most effective—if least transparent—piece of legislative engineering in this entire system.
That move accomplished two things:
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It reinforced the illusion of collectability.
If a debt can never be discharged and never expires, it can always be booked as an asset. -
It made student loans appear “fiscally light” for budget scoring purposes.
The Congressional Budget Office can treat these loans as largely collectible—even when real-world repayment rates tell a very different story.
The result is a kind of legislative sleight-of-hand:
Relief measures (whether forgiveness, IDR reforms, or bankruptcy discharge) are scored as massive “costs,” while the underlying loan portfolio is treated as if it were fully realizable.
Anyone who has practiced consumer bankruptcy—or reviewed student loan adversaries—knows that assumption borders on fiction.
A System Coming Unmoored
Herrine closes by noting that the old coalition has fractured. The insider politics have lost legitimacy, borrower activism has grown, and even basic repayment terms are in flux.
That leaves us in a transitional moment:
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Student loans are no longer politically stable;
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Direct funding models (grants, free college) remain contested;
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And the legal system—particularly bankruptcy courts—continues to struggle with doctrines built for a very different era.
From this vantage point, the current push—whether through DOJ guidance, evolving “undue hardship” standards, or legislative proposals—may be less a reform of student loans than an attempt to unwind a decades-long political compromise.
Bottom Line
Student loans were never just about financing education. They were a political workaround—one that allowed Congress to fund higher education without appearing to do so.
But like many forms of disguised debt, the true costs were merely deferred.
And now, as bankruptcy practitioners are seeing with increasing frequency, those costs are coming due.
To read a copy of the transcript, please see:
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