GOP plan would make students pay more for federal loans

THE BALTIMORE SUN

College students may not find clashes in Washington over interest all that interesting. But proposals being weighed by congressional Republicans to cut federal funding for student loans could have a direct effect on them.

Although a recent budget resolution does not specify exactly which programs are to be cut -- such decisions will be hammered out in the weeks and months to come -- Rep. William Goodling, a Pennsylvania Republican, has an eye on a particular target.

While students are in school, they do not pay for federally subsidized loans. They do accumulate interest on the money they've borrowed. Six months out of college, students begin to pay those loans. But the government pays the banks for the interest that mounts up during those four years.

According to Mr. Goodling's House Committee on Economic and Educational Opportunities, the government could save $12.4 billion over five years by having students pay the interest that accumulates from day one. Students would not have to pay the money any sooner -- but the typical student supported by his parents would have to pay an extra $1,426 on the maximum loan of $17,125. A student without support from parents borrowing the maximum $35,125 would have to pay an extra $2,627, if all related proposed fee increases are taken into account.

With signals of still opposition from Democrats and Republicans in the Senate, one of the panel's subcommittees has started to consider eliminating only the subsidy for graduate and professional students. These people can borrow up to $34,000 -- and would pay an additional $9,400, according to estimates from the U.S. Department of Education.

Many Republicans seeking to balance the federal budget by the year 2002 say lifting the government payment of interest is a reasonable way to diminish federal spending. It is a move, advocates say, that would merely ask students -- whose income will presumably rise as a result of their schooling -- to pick up the cost of their education.

"It's a fairness issue," said Cheri Jacobus, spokeswoman for the House Economic and Educational Opportunities Committee. "Seventy-five percent of the nation doesn't get to go to college, yet they are subsidizing the education of future high earners and millionaires."

The move could affect an estimated 5 million undergraduate students and 725,000 graduate and professional students nationally, and more than 53,000 Marylanders.

Committee staffers deftly note they lifted the possible measures from a long and controversial list of items generated by Alice Rivlin, President Clinton's budget director.

Not surprisingly, interest groups representing students and colleges are joining U.S. Education Department officials in vehemently opposing the committee.

"The Clinton administration strongly believes this is the wrong way to go," said Madeline Kunin, deputy U.S. secretary of education. "The yes or no decision of whether to go to college is very carefully calibrated.

"If you enable young people who otherwise wouldn't go to college to gain a degree, their increased earnings will then repay the investment" through additional spending and taxes, Ms. Kunin said. She also said the people whose loans are subsidized by the government are those least able to afford the costs on their own. (Students receiving subsidized loans come from families averaging about $25,000 in annual household income. Students from higher-income families can qualify for federally guaranteed loans but don't get the interest subsidy and bear the full cost).

Not all people getting advanced degrees intend to become surgeons or trial lawyers, noted Kevin Boyer, executive director of the National Association of Graduate and Professional Students in Wilmette, Ill.

"If you have $150,000 in debt, and 10 years to pay it off, and you're earning $30,000 a year at a university -- just do the math," Mr. Boyer said. "The Republicans in the House who have proposed this have not thought through the impact of what TC they're suggesting."

And studies indicate that those medical and dentistry candidates who reach $75,000 in debt are likely to decide to focus on highest-compensated specialties, Mr. Boyer said. That's an unwanted outcome at a time when managed care is seeking more general practice physicians.

Committee staffers said the average loan would cost an additional $21 per month for 10 years, or an extra $45 per month for the four-year span of college. They compared that to the cost of a daily "Big Gulp" drink at the corner store, or monthly basic cable fees.

The staffers also point out that a balanced budget will probably reduce the interest rate at which students borrow money by 2 percent. So future generations of students will have to pay all of a lower interest rate, rather than a subsidized portion of a higher one. The net result, committee staffers argue, would be only a small increase in spending by people repaying loans for tuition bills, and big savings for people financing the purchase of homes and cars.

But the Goodling proposal has nettled some Republican lawmakers, notably Sens. Nancy L. Kassebaum of Kansas and Olympia Snowe of Maine. "She was quite disappointed," Ms. Kassebaum's spokesman, Michael Horak, said of the senator. "It's tough to determine if even these changes will result in the savings that are due under these assumptions. There may be other areas that have to be cut."

The debate over interest subsidies is playing out against a backdrop of a separate skirmish over the president's cherished direct lending program. Republicans favor continuing to pay fees to banks to make student loans. Democrats want students to borrow directly from the government, with colleges acting as middlemen.

Earlier this summer, House conservatives brandished a menu of possible cuts in labor programs and student loans, calling for savings of $18.7 billion in a budget resolution crafted earlier this summer.

Subsequent negotiations with Senate counterparts led to a smaller figure of $10.8 billion -- about $10 billion of which will come from student loans. College administrators interviewed said they were not able to keep up with the flurry of proposed changes to the current system.

It is not clear how the dispute will be resolved. Moderate Republican senators such as James Jeffords of Vermont, Ms. Snowe and Ms. Kassebaum may split ranks with their fellow partisans to oppose the Congressional leadership.

And ultimately, Ms. Kunin said, Mr. Clinton may decide to use the veto pen he has discovered in recent months.

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