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History of Student Loans

Financial aid for economic competition – what does that mean? And what does it have to do with student loans? Well, my friend, actually, it has a lot do to with it. And the history of student loans will reveal the relationship between the two. If you understand the original purpose of student loans, then it’ll become clear. So let’s follow that history and see what we’re talking about here.

Why were student loans created?

October 4, 1957 – the Russians successfully launch the world’s first satellite, Sputnik. Ok, but what could that possibly have to do with student loans? More than you may think. You see, the launching of Sputnik was the firing of the starting gun to begin the space race between the U.S. and the U.S.S.R. That prompted the U.S. to see the advantage of educating and training its own people to create similar projects. Now, how could they do that, when post-secondary education cost so much money and not everybody had enough.

Well, by that time, consumer financing had already poked it’s accommodating head out, offering immediate possession of big-ticket items, with an extended period of time to pay for them. Why should the cost of education be any different? Consumer loans could be converted into student loans. It’s quite a stretch, but the connection’s there, nonetheless.

So student loans were designed to put many students who wouldn’t have ordinarily been able to afford higher education, into colleges and universities. The U.S. government actually believed that education was the primary responsibility of the parents. But they also recognized that many parents just couldn’t afford to send their children to college, no matter how much they wanted to.

The idea of financial aid started in 1935

While all this was going on, the actual idea of financial aid for students had been introduced in Indiana in 1935. The Indiana General Assembly legislated mandatory fee remission awards to students on the basis of competitive testing. Subsequently, the Indiana State Financial Aid Association (ISFAA), the first state financial aid association, was formed. In the early 1940s, the Financial Aid Office was created by Indiana University, functioning independently from Student Services, who had taken care of such matters up to that time. The ISFAA was run well, which encouraged other colleges, both private and public, to join the Association.

Through the years, the ISFAA underwent changes in their makeup, moving from a constitution-based organization to one of by-laws. From 1957-1960, when they finally settled on a solid foundation, they assisted the government in creating programs and training opportunities. You see, financial aid was a rather involved business, so the Association needed the training programs to teach each other ways of offering financial assistance. They developed and hosted a program that became very successful over the years.