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Radical Proposals Set Stage for Student-Aid Battle

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A battle is brewing over student aid, as both the Clinton Administration and the Republican-led Congress are proposing radical changes in the way the federal government helps foot the bill for postsecondary education.

And it is not just an issue of how much help is to be available and who will be eligible for it. Also at stake in the debate are control over the lucrative student-loan industry and the future of vocational education.

The proposals now on the table could amount to the greatest period of change in higher-education policy in more than three decades, college leaders say. Virtually every student-aid program has been slated for elimination, cuts, or radical restructuring, noted Terry W. Hartle, the vice president of government relations for the American Council on Education.

'Clear and Present Danger'

At the moment, higher-education leaders are most concerned about proposals to eliminate the federal subsidy that pays the interest on many students' loans while they are in college. Some Republicans have proposed making that change in budget legislation that is set to move in coming months.

"That's the clear and present danger right now," said David Longanecker, the Education Department's assistant secretary for postsecondary education.

Of the seven million loans made last year, 4.5 million were subsidized loans, which go to students who meet certain income criteria. Higher-education lobbyists argue that the change would increase the cost of paying back loans by 20 percent to 50 percent, depending on how long students were in school and how much they borrowed.

"You would have to work to find a more devastating proposal," Mr. Hartle asserted.

Supporters say that killing the subsidy would save at least $9 billion over five years, and that the change would increase monthly payments by as little as $21 for a student who borrowed the maximum amount for two years.

"It's clear that because of the budget deficit that this is a time when Congress is going to have to make tough choices about higher education, about transportation, about farm subsidies, about everything," said one Republican aide.

While the interest subsidy has been the primary focus of college leaders in recent weeks, proposed cuts in other programs also have them concerned.

The House passed a rescissions bill last week that would eliminate the entire $63.4 million appropriated for this fiscal year for the State Student Incentive Grants program, which provides federal matching aid for state scholarships. It would also cut $11.2 million from the $463 million budget for the so-called trio programs, which pay for efforts to help disadvantaged high school students prepare for college; $47 million of the $345 million earmarked for administrative costs of the Administration's direct-lending program; and funding for several small scholarship programs. (See related story .)

The bill would also cut the entire $20 million appropriation for state postsecondary-review entities, a new set of state regulatory bodies created by a 1992 law as part of an effort to curb fraud and abuse in student-aid programs.

(See education community's complaint about overregulation and will be looking at that as we move through the session."

Indeed, college officials have complained that the new agencies will burden legitimate institutions with paperwork instead of targeting problem schools. At the a.c.e.'s annual meeting in San Francisco last month, President Clinton pledged to consider alternatives to the new system.

Direct Lending

But these issues are likely to be overshadowed when Congress reopens the debate on the direct-loan program, under which the government makes loans directly to students through their colleges.

The Clinton Administration is eager to expand the year-old program and hopes it will gradually replace the older guaranteed-loan system--a move it claims would save more than $12 billion by 2000. But the banking industry is fighting to preserve its student-loan profits, and some Republicans want to halt the program's growth until it has a longer track record. (See related story

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