Too Tough and Too Lean

"ATOUGH, lean budget" is what Secretary of Education William J. Bennett has called the Education Department's higher education funding requests for Fiscal Year (FY) 1988. Most university representatives agree with that characterization, but with little else in the proposed budget.

As in previous years, the Administration budget calls for drastic cuts in student aid. Since the 1960s, a basic assumption of federal policy has been that the more people gain access to higher education, the better off we will be as a nation--hence the many federal grant and loan programs that have brought higher education within the reach of those who would not otherwise have been able to afford it.

The FY 1988 budget proposal calls for a reversal of this trend. They would eliminate many of the established sources of financial aid, replacing them with an unsubsidized loan program that would force students to incur exorbitantly high debt levels in order to finance their education. The Reagan Administration attempts to justify this proposed change with the assertion that students, as the beneficiaries of a college education, should shoulder the major financial responsibility themselves.

THE PROPOSED budget mirrors a society responding to conflicting demands. On the one hand, there is the still urgent need to bring the huge federal deficit under control. On the other hand, there is the problem of buoying up sinking U.S. competitiveness and reversing America's trade imbalance, difficulties which the Administration has addressed by requesting more money for scientific and technological research.

The question is whether the Administration wants to apply short-term solutions to what are long-term problems by counting on large-scale research projects to produce profitable spin-offs, while at the same time reducing federal contributions to student financial aid. Will Congress accept the Administration's priorities or will it make fundamental changes? The expectation in Washington is that the budget will be altered extensively in the months ahead before it is approved.

The Administration's proposal would cut funding for student aid by 46 percent. The cuts include a $1.2 billion reduction in the Pell Grant program as well as a change in eligibility requirements. The new budget would disqualify any student from receiving a Pell Grant whose annual family income was over $20,000. The current income limit is about $28,000. This proposed change would effectively deny aid to more than one million students.

In addition, the budget would entirely abolish a number of key student aid programs. These include Supplemental Grants, College Work-Study, Direct Loans, State Student Incentive Grants, and several graduate fellowship programs. The cuts would eliminate and additional two million federal aid awards.

THE GUARANTEED Student Loan Program would continue, but it would be cut 61 percent, from $3 billion in FY 1987 to $1.2 billion in FY 1988. Ending the federal subsidy of in-school interests and substituting a nine percent "guarantee fee" for the current five percent origination fee would increase costs to borrowers. Meanwhile, new caps on interest rates would make the program less attractive to lending institutions and might induce them to end their participation altogether.

To take the place of eliminated or diminished programs, the FY 1988 budget would expand the Income Contingent Loan program (ICL). Congress rejected ICL when it was proposed as part of the FY 1987 budget, but agreed to fund it at $5 million on a pilot basis. Although the results of the pilot program are not yet in, the FY 1988 budget proposes to expand ICL into a major loan program funded at $6000 milion. The Education Department claims that under ICL "financially needy students would be able to borrow large amounts of money on manageable, income-sensitive repayment terms, and yet at no net cost to the Federal Government because there is no interest subsidy."

Specifically, ICL would permit a cumulative limit of $50,000 on graduate and undergraduate loans, to be paid back at interest levels three percent higher that the Treasury rate. Repayment would begin six months after a student leaves school with payments not to exceed 15 percent of income. There would be no time limit on the length of repayment, but, on the other hand, no portion of the loan would be forgiven, regardless of the student's financial status.

THERE IS considerable evidence about the dangers of allowing a generation of college-students to go heavily into debt. A recently issued report by the Congressional Joint Economic Committee entitled "Student Loans: Are they Overburdening a Generation?" shows that student borrowing has quintupled in the past decade and that students at private four-year colleges now graduate with an average debt of almost $9000. This trend, which the adoption of ICL would greatly accelerate, is cause of considerable alarm.

The report states that

Growing student indebtedness has raised questions about the implications of the debt burdens for the national economy, for the economic well-being of borrowers, for equality of access to higher education and even for the educational process itself.

The study's author, policy analyst Janet S. Hansen, says that students are not aware of the financial risks they are taking when they borrow large sums of money to pay for college. In an economy marked by low inflation and slow growth in which the number of well-paying jobs for young people seems to be steadily declining, loan repayment will constitute a heavier burden in the future than it did in the 1960s and '70. "We should not take a caveat emptor attitude toward students," she says.

Moreover, there are many who question the very premise behind ICL--the notion that students must shoulder the financial burdens of education because they are its beneficiaries. Boston University President John R. Silber, for example, vigorously attacked the Education Department's budget on these grounds in a recent New York Times editorial.

"It is strange," Silber wrote, "that this Administration, which has campaigned on the issue of bringing fiscal realism to Government, does not see that spending on education is not consumption but investment. A dollar well spent on education is a dollar spent in developing our country's most important capital asset: intelligence."

John Shattuck is Harvard's vice president for government, community and public affairs. Ken Gewertz writes about public affairs for the Harvard News Office.