Making College More Costly

Tighter loan rules will squeeze schools, parents and students

Since 1978, every U.S. college student, regardless of family income, has been eligible for a Government guaranteed student loan. Not surprisingly, these loans swiftly grew into the nation's major source of student aid, contributing heavily to college budgets. This year they total about $5 billion.

Now the Reagan Administration is trying to cut back drastically on such student loans. Its motto is: "Families and students--not the Federal Government--should be the first source of funds for education expenses." Its goal: to tighten standards of loan eligibility and require larger family contributions to college costs. Under present law, any student can obtain an annual loan of up to $2,500 for four undergraduate years (plus $5,000 for a year of grad school). Parents can borrow an additional $3,000 to help foot college bills that at schools like Harvard, M.I.T. and Stanford next fall will exceed $10,000 per annum. Currently the Government not only guarantees repayment, it pays banks the difference between the 9% interest paid by students and the going commercial rate (now about 17%). As long as students are enrolled in school, the Government makes payments to the banks to cover interest. The borrowers do not have to begin their repayment until six months after they graduate and even then have up to ten full years to discharge their debts. Despite the generous terms, the default rate was as high as 10% in 1977. By last year, after a Government collection campaign, it had dropped to about 6%.

Under President Reagan's proposed plan, the Government will guarantee loans only to students who have actually proved "financial need," in very much the same way that colleges now determine eligibility for scholarship funds. Students and parents will be expected to contribute a certain amount of money to education each year on the basis of the family's adjusted gross income. The borrowing limit will be the difference between the required family contribution, plus any college scholarships and work-study assistance a student has been granted, and the total cost of the education. In short, applying for a loan will be more like applying for a grant or a scholarship. Borrowing the maximum, $2,500 a year, will be possible only for very low-income families. All along the line, families will have to contribute more toward their children's school bills.

These and other reforms could cut the volume of guaranteed student loans by nearly 40% by 1982 and save the Government as much as $2 billion over the next five years. Even educators agree that the open-ended G.S.L. program ought to be limited. But many of them fear that the loss of so much aid to students may radically change higher education in America. They warn that the reduction in aid may keep lower-and middle-class students from attending expensive private colleges, turning such schools into exclusive preserves for the rich. About two-thirds of all private-college students in New York State, for example, now have Government guaranteed loans, as do more than 20% of all students nationwide. Colleges with large numbers of students on guaranteed loans are especially vulnerable, and some may be forced to close. Dallas Martin, director of the National Association of Student Financial Administrators told TIME Washington Correspondent Jeanne Saddler: "It would be a tragedy if we cut back like this on an entire generation. The last time this happened was during the Depression, and it took the country years to recover. College graduates provide us with technological advances and generally they pay more taxes."

Large numbers of students and parents, educators insist, will simply not be able to find the extra cash required. As Douglas Seipelt, president of the National Council of Higher Education Loan Programs, puts it, "The system is saying that if you're making $25,000 and you have two children, one in college, you should have $2,000 in your checking or your savings account to pay the college. In my opinion, it's not there."

Students and parents around the country agree. Still, many seem willing to try other ways of paying for education. Steve Holtz, a pre-dentistry sophomore at the University of Michigan, earns $750 a year in addition to his $2,500 loan, and his schoolteacher mother contributes $750 toward the total cost per year of $4,000. "My mom has already sacrificed enough for my sister and me," he says. "I wouldn't have the nerve to ask her for more money." If Holtz loses all or part of his loan under the new proposal, he will change plans, find a job this spring "and try to save enough to help pay for the rest of my education." But, he notes, with his limited qualifications work is hard to find in the Detroit area. Greg Madonna, at the University of Nevada at Reno, has a similar problem. His father, an Air Force colonel, makes $31,000 a year and has four children, three of whom will be in college this coming fall. Says Madonna: "My parents pay for my room, which is $381 a semester, not including food. That's about all they can do." Without his $1,250 loan, he would have to quit school. But, adds Madonna, he would "get a job, save money and then go back."

The Government also aims to cut back on Basic Educational Opportunity Grants (just renamed Pell Grants). These are not loans but flat annual awards of up to $1,750 given to notably needy students. To qualify for a Pell Grant, a needy family must now contribute to each child's education 14% of its "discretionary income," i.e., what is left over after essential bills have been paid. The Reagan plan would increase that figure to 20%. It would further require that all grant recipients personally earn a minimum of $750 a year toward their education.

There are signs that Congress may refuse to cut educational funding as deeply as Reagan proposes. Since the plan is likely to affect close to 4 million students and every U.S. college, public and private, the political as well as the fiscal stakes are considerable. Some college-aid experts are already urging that the new tough standards be applied only to families with incomes above $30,000 a year. It seems reasonably certain, though, that many American families will have to think harder than ever about the cost--and value--of education. It also seems a safe bet that the "stop-out" pattern will increase, not so the student can "find himself for a year or two, but so he can earn enough money to go on.

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