ALWAYS EXPENSIVE, a Harvard education is becoming costlier each year. But a new Harvard program announced this year may make the burden easier to bear.
For a member of the Class of '72 entering Harvard in 1968, the cost of a year in the College was $32.40. The tuition, room and beard bill for a freshman in the entering Class of '76 will be $47.45, an increase of $275 over this year's cost and a $1505 increase in just four years.
This boom in the price each student pays for his education has put an enormous burden on low and middle-income families, a burden which scholarships and grants cannot completely alleviate without consuming the additional revenue and negating the purpose of the increase.
Many have warned that Harvard could become a college for the very rich who can afford the full cost and for the very needy who can qualify for full scholarships.
The Harvard Plan--proudly unveiled by the Administration last January, the same day that it reluctantly unveiled yet another tuition increase--is a unique student loan program which could set the pattern for other universities seeking to make more bearable the burden of student education expenses.
Under the Harvard Plan, a student who qualifies for financial aid may borrow up to $1500 a year to meet expenses for college, graduate school or professional school so long as his total indebtedness does not exceed $7500. The College will attempt to limit loans to $1000 per year per student.
The Plan provides for the creation of a central loan office for the entire University. R. Jerrold Gibson '51, current director of Student Employment and chief architect of the Plan, will be director of the loan office.
"The $1000 limit is a normal precaution against undergraduates overextending their indebtedness, which could be waived in a special case if the case were very good." Gibson said last week. "But we don't want the undergraduate debt to get out of hand."
REPAYMENT OF THE loans need not begin until the student has completed college, graduate school, or service in the military, the Peace Corps or VISTA. A student may also take a 12-month leave of absence from school without beginning repayment.
In addition, those students who qualify for Federal interest subsidies--those whose families have an "adjusted family income" of less than $15,000 a year--will have their interest paid by the government until repayment of the principal begins. During the preliminary "grace" period, the only cost to those students is the one-quarter of one per cent Federal insurance charge subtracted from the face value of the loan at the time of disbursement.
Adjusted family income is defined on the Federal income tax form as 90 per cent of gross income minus a $675 deduction for each dependent, allowing some leeway for families with more than one child to support. For example, a family with an income of $19,000 and two children would qualify, as would a family with an income of $21,000 and four children.
The normal term of repayment is five to ten years, with interest over this period at 7 per cent per year. Students who do not qualify for interest subsidies may still receive loans, but must pay 7 per cent interest for the life of the loan with no preliminary "grace" period.
The chief innovation of the Harvard Plan over past student loan programs is its combination of Federal loan subsidies and guarantees with a University-administered income protection system allowing cancellation or deferment of outstanding debts for graduates in hardship situations. Because the government is willing to assume the risks for the loans. Harvard can afford to be flexible in protecting the future income of students.
THE GUARANTEED Insurance Loan Program (GILP)--established under Title IV of the Higher Education Act of 1965--was originally intended to induce banks and other private lenders to provide student loans. Under GILP, the Office of Education guarantees loans in full. It will cancel loans in case of death or total disability: provide interest subsidies for low-income students: and pay the lender an interest supplement intended to make student loans as attractive as alternative investments.
The Office of Education is also empowered to collect defaulted loans. If a regular payment is overdue by more than 180 days, the government repays the lender and undertakes to collect the full amount of principal and interest due.
But banks have been reluctant to provide the volume of lending necessary on terms favorable to students. Most Administration officials think that plans like Harvard's are needed to provide students with large amounts of money and flexible repayment conditions.
"The major difference between this Plan and our former loan program is that we're clearly moving to a time when we'll have to increase the indebtedness of the individual student, and we need the funds and an effective program for protecting low-income students," Gibson commented.
The chief income protection provision of the Plan is the graduated repayment schedule. "We realize that the roughest period for repaying the loans will be the first few years, so we have tried to shift the burden to the end," Gibson said.
The government requires minimum quarterly payments on principal of $90, or $360 per year, and the University will use that figure as a base. Payments will then increase at the rate of 8.5 per cent a year, the estimated average rate of income increase for college graduates. On a loan of $4000, first-year payments would be $90 per quarter and tenth-year payments $207 per quarter.
A second provision limits repayments in any one year to no more than 6 per cent of an individual's income or his share of joint income, whichever is higher. An unmarried graduate who makes less then $4000 or a married graduate who makes less than $6000 also receives a deferred payment privilege.
Deferred payments are one-year loans at 7 per cent for the amount in excess of what the graduate can pay, which may be renewed so long as the graduate remains in a low-income situation. Applications for postponement of payment are to be decided on the basis of Federal income tax returns. If any indebtedness remains after 13 years, the graduate may apply to have the loan "forgiven," with all repayment obligation cancelled.
GIBSON ESTIMATED last week that the College would loan out over $1 million next year under the new program to between 1000 and 1200 students. He predicted that the total University loan figure might reach $4 million although final figures are not available from several faculties.
This loan money comes from two sources: the old student loan budget which is tapped first, and the unrestricted funds of the University endowment. Despite a generous income protection pulley, Gibeen said he hopes that the program will eventually show as surplus.
The former student loan program provide a maximum of $3900 at 3 per cent with a "grain" period before interest payments begun. The revenue to finance income protection is expected to come from the higher interest rate available under GILP--7 per cent from these not receiving Federal interest subsidies, and 7.75 per cent on subsidized. The extra three-quarters of one per cent is the current Federal interest supplement which may vary with market conditions.
The program's major drawback seems to be that commitment of endowment funds to long-term student loans may reduce the flexibility of Harvard's portfolio management. However, under the new Higher Educational Aid Bill passed by the House in June, an agency may be established to allow leaders to sell their loan holdings on the open market.
The new agency, the National Student Loan Marketing Association, would initially be Federally controlled, but eventually ownership would be shifted to the institutions involved, creating an avenue for new capital to enter the loan program without tapping the endowment.
The aid bill--for which Harvard had straggly lobbied until an anti-busing amendment was attached in the Senate--also authorizes an unprecedented $1 billion-a-year program of direct grants to colleges and universities to be used at the school's discretion.
ADMINISTRATION OFFICIALS at Harvard are fond of comparing their program with the much-publicized Yale Plan Yale's long-term loan program--announced last Fall--provides for the repayment of indebtedness as a percentage of income over 35-year period. The basis of the program is an attempt to have those who most benefit financially from their education bear the lion's share of the cost. Yale's plan does not utilize Federal subsidies.
Harvard officials say that the Yale Plan tends to penalize success. Under the Harvard Plan no student pays more than the amount he borrowed plus the 7 per cent interest charge.
"We're protecting the people at the bottom," Gibson said last week, "but not by increasing the amount of indebtedness of these people at the top. Everybody knows what his indebtedness is, and he doesn't have to worry about being penalized for repaying his loan early. Our Plan also provides for a shorter period of indebtedness--10 to 13 years versus 35."
As usual, Harvard is pointing the way for other universities. Oberlin and several other major institutions are already studying the Harvard Plan for possible implementation. Hard-pressed colleges and harried parents throughout the country may own Harvard a debt of graditude. But it seems likely that by the time the Class of '76 graduates some four years hence, they will own Harvard a good deal more.