Wall Street Journal education reporter Josh Mitchell has a new book coming out titled The Debt Trap: How Student Loans Became a National Catastrophe.

Here’s the publisher‘s blurb:

In 1982, a new executive at Sallie Mae took home the company’s financial documents to review. “You’ve got to be shitting me,” he later told the company’s CEO. “This place is a gold mine.”

Over the next four decades, the student loan industry that Sallie Mae and Congress created blew up into a crisis that would submerge a generation of Americans into $1.5 trillion in student debt. In The Debt Trap, Wall Street Journal reporter Josh Mitchell tells the untold story of the scandals, scams, predatory actors, and government malpractice that have created the behemoth that one of its original architects called a “monster.”

The tale begins in 1957 with the launch of Sputnik. Afraid that America was falling behind the Soviets in science education, Congress created the first major federal student loan program to enroll more students in college. What followed were a series of well-intentioned government actions that created a cycle of reckless lending and runaway tuition. Easy access to loans allowed colleges to raise tuition to unheard of levels, which in turn led Congress to increase loan limits and interest rates and expand who could borrow. This spiral continued as the private banks that fronted the money made huge profits on interest. “Nobody was pure in this business,” one former college president said.

As he charts the gripping seventy-year history of student debt in America, Mitchell never loses sight of the countless student victims ensnared by an exploitive system that depends on their debt. Mitchell also draws alarming parallels to the housing crisis in the late 2000s, showing the catastrophic consequences student debt has had on families and the nation’s future. Mitchell’s character-driven narrative is required reading for anyone wanting to understand the central economic issue of our day.

The Atlantic features an excerpt focusing on my graduate alma mater titled “A Crimson Tide of Debt” with the ominous subhed “Instead of propelling students into the middle class, many public institutions such as the University of Alabama are leaving them saddled with large loans.” It focuses on the case of a particular student from a lower socioeconomic background but what I find interesting is the larger business model. Much of what’s contained in the piece was known to me generically but Mitchell’s distillation is illuminating.

The University of Alabama had a meticulously groomed campus and stately redbrick buildings whose white colonnades conveyed scholastic gravitas. It had the championship-caliber Crimson Tide football team and legendary game-day tailgating with students swilling beer on fraternity-house rooftops. It featured amenities such as a state-of-the-art recreation center with a climbing wall and a “lazy river” pool complex with a 30-foot water slide. Fraternities hosted world-class rock concerts. A campus dining hall served steak cooked to order.

Everything on campus—including the student tour guides dressed in red polo shirts, riding around with parents in the back of golf carts, and the tulips carefully arranged at the school’s main entrance—was designed to appeal to young students like Thomas and their parents.

We’ll come back to this but Steven Taylor and I have commented on this trend many times before: one of the things driving up tuition costs is this massive investment in educationally irrelevant infrastructure that’s designed to attract students from well-heeled families. Much more on that later.

Until 2000, Alabama was known more for its game-day parties than academics. Faculty felt underpaid. School leaders deferred repairs or upgrades to campus facilities while downsizing or eliminating departments. Asking the state legislature for more money was a long shot; Alabama was one of the poorest states in the U.S.

This highlights a second factor we’ve both highlighted: the decreasing investment by state government into higher education. Most state universities across the country have been decreasing the share of the cost they are paying, a function of increasing costs elsewhere (pensions, prisons, police, etc.) and the inability to raise taxes.

A generation ago, public colleges such as Alabama received the large majority of their funding from state legislatures and were thus relieved of the need to charge students high tuition. As late as 1980, the money that public colleges received from student-paid tuition made up only a fifth of their revenues, on average.

Over the years, the responsibility of paying for public college shifted from state governments to students. By 2019, tuition dollars made up nearly half of all money state colleges collected each year.

Colleges such as Alabama say they have been forced to raise tuition because state governments cut direct funding of schools. During the 2007-09 recession, state governments radically reduced funding for higher education in order to deal with a severe drop in tax receipts. But many state colleges have raised tuition even when times have been good and state funding has been stable or increasing.

So, why are they doing it? In many cases, simply because they can. More on that shortly. But, also, because there’s an inexhaustible demand for more money.

The state legislature had for years rejected the university’s requests for big funding increases. Witt concluded that he had to raise tuition and expand the student body. The more students the school enrolled, the more money it would make.

Witt and Bonner came up with a strategy. Alabama didn’t have enough college-eligible in-state students, so they’d expand the pool of applicants by recruiting from outside the state. The university at the time had about 19,500 students, three-quarters of them from the state. Not only would Witt and Bonner expand the number of applicants; they’d recruit students who would pay far more than those who had come from Alabama. The school, like most state flagships, charges much higher tuition—up to three times higher—for out-of-state students. Many of those students would pay that tuition through student loans. And because the federal government had capped how much undergraduate students could borrow, many parents had to take out loans too.

The strategy changed the university’s identity. Its leaders abandoned the school’s role as a state flagship whose main mission was to teach in-state students and give an economic lifeline to the poor from rural areas. Instead, it became a regional, and eventually national, franchise.

Witt looked at what national elite universities were charging and determined that Alabama was underpriced. His first year, he raised tuition by $1,000. “We didn’t approach what we’d charge from a particularly sophisticated level,” Witt says. “We increased it $1,000. It was a fairly significant percentage increase. Applications and acceptances continued to go up. We basically systemically started taking it up $1,000 a year. Our thinking was If we begin to notice a softening in applications, acceptances, and/or matriculation, we’ll know that we need to start backing off a little.” That never happened.

For Alabama, this started almost twenty years ago now. Currently, in-state students pay $5390 and out-of-state students pay $15,125 per semester—$10,780 and $30,250 a year—in tuition alone. That doesn’t include various mandatory fees or books, much less room, board, transportation, and other expenses. When Witt started this practice in 2003, out-of-state students paid $9500 a year—or less than in-state students pay now.

Raising tuition was one prong in the strategy. Witt and Bonner also had to geographically broaden the student body to get prospective students from around the country to pay attention to Alabama and apply.

Witt foresaw a domino effect. Recruiting out-of-state students would beget more out-of-state students. Once someone from, say, Oregon committed to Alabama, they’d tell their friends or younger siblings, who would then be more likely to apply. Alabama hired three dozen recruiters stationed all over the country.

“We worked very hard to not only recruit students aggressively, but to recognize that to the right or left of that student is a parent or parents, and you need to recruit them also,” Witt says. “You need to, in effect, recruit the high-school counselors who advised many of these students. And you need to put together a field of recruiting operations that needs to be managed exactly the way you manage a field-sales organization.”

So, two things are going on here.

First, this radically changes the student body. This is arguably a good thing, indeed, if you’re trying to build a nationally-ranked university. But, if you’re an Alabama taxpayer—or an Alabama parent hoping to send your kid to the Capstone—it means the state’s flagship university is mostly educating kids who won’t be living in or paying taxes in Alabama upon graduation.

Second, this is a version of “it takes money to make money.” That is, while the university is doubtless bringing in more revenue under this strategy, it’s also eating up a significant amount in paying for this recruiting infrastructure.

Relatedly, do you recall the educationally irrelevant infrastructure I referenced earlier?

Witt transformed the university into a wonderland of higher education, and not in a figurative sense: He used Disney World as a model. Research indicated that many families decided whether to apply to a school within 20 minutes of arriving on its campus. First impressions were everything. Witt concluded that the grounds had to be pristine. He hired a retired Air Force colonel whom he sent to Disney World to study how the theme park managed its grounds.

When Witt went recruiting in wealthy enclaves in the Northeast, he discovered that many prospects had their own bedroom, not shared with siblings. He believed he needed to cater to those students by building dorm-room suites. The university built 10 residence halls during Witt’s tenure, along with the new recreation center, new academic buildings, and a baseball field, and expanded the football stadium. A new building opened every 90 days.

Again, it makes perfect sense. If you’re trying to attract the kids of the upper-middle-class and wealthy. you need to cater to their expectations. But we’re creating four-star accommodations rather than anything most of us over 40 remember as “dorm rooms.”

The university didn’t just want to increase the student body. It also wanted to attract students with strong academic credentials—high SAT and ACT scores—who tended to come from wealthier families. Those students would raise the university’s national profile and ranking.

But those students were also hard customers to land. The University of Alabama needed to have exactly the right pitch to lure them in and close the deal.

So the university did what more and more schools had quietly started to do since the early 2000s. It turned to consultants who specialize in tailoring tuition for individual students. Specifically, a consultancy by the name of Ruffalo Noel Levitz, which plugs student data into algorithms that cough out custom-made tuition plans—one of a half-dozen firms in a cottage industry known as “enrollment management.” These firms, largely unknown to the public, set the true price of college tuition, using a calculus hidden to applicants.

The industry emerged in the 1970s. At the time, colleges faced a crisis on two fronts: a demographic slowdown and the end of the Vietnam War. Fewer customers meant fewer tuition dollars. Colleges had to get creative about tuition in order to extract more money from those who did enroll. Consulting firms cropped up to help them do that.

There’s more in the piece but you get the idea. Regardless, the university has achieved its goal: despite radically increasing the size of the student body and the cost of attendance over the last two decades, Alabama has moved up the national rankings and has ratcheted up its average SAT scores to elite school levels.

Not mentioned in this piece but I would attribute some of this to the arrival of Nick Saban as the head football coach in 2007. The school has won six national championships over that span and been in the running for several more. That absolutely raises the school’s reputation and attractiveness to would-be students.

Also unstated in the piece is the influence of the US News university rankings. Metrics like SAT, national reputation, faculty salary, and endowment heavily influence a university’s position. This naturally incentivizes competition to move up the rankings and, again, Alabama has successfully moved up the ladder. While the state’s poverty and the shadow of George Wallace hang over the institution and preclude it breaking into the upper tier anytime soon, it’s far more prestigious a brand than it was two decades ago.