The article traces the history of the first student finance system of the Swedish Social Democratic welfare state, a selective system of grants earmarked for students from working-class backgrounds. Introduced in 1939, this lesser-known system preceded the current loan-financed system set up in 1965 to reach students from all classes. The reasons for introducing the selective system, how the system met the objective of broadening the recruitment of students from across the social spectrum and the arguments behind the dismantling of the system are analysed. The selective system had a powerful equalising effect but student loans were, however, more compatible with the emerging idea, imported from the Chicago School, that education could be considered an investment in human capital, a generator of future income (and therefore funded by a loan) rather than a right. Historical institutional theory is used to analyse the shift between two diametrically opposed models that existed within the same Social Democratic regime.