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.