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, page 22.)

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 ACE'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 story, page 34.)

In addition to revisiting the federal student-loan programs, Congress may also make big changes in the Pell Grant program, which provides grants to needy postsecondary students.

In the "Middle Class Bill of Rights" President Clinton unveiled late last year, he proposed raising the minimum Pell Grant from $2,340 to $2,620 and introducing "skill grants"--vouchers of up to $2,600 for low-income or unemployed workers to use for training or education. The plan would essentially enlarge the Pell Grant program--at the expense of some other job-training programs--and split it in half, with the skill grants administered by the Labor Department.

Most Republicans oppose the skill-grants idea. Instead, they have proposed replacing the dozens of federal job-training program with a block grant, allowing state to decide what programs to finance. Several G.O.P. governors have even proposed merging all federal student-aid and job-training programs into one massive block grant. (See Education Week, March 15, 1995.)

Observers agree that such a sweeping plan ha little chance of passing Congress. But a less ambitious job-training-consolidation bill is considered a much better bet.

Tax Deducations

For-profit trade schools are particularly anxious about proposals to separate them from degree-granting colleges. Proprietary schools have been shown to be responsible for a disproportionate percentage of fraud in the aid system, and a separate aid program could be a tempting target for cuts.

A spokesman for community colleges said the skill-grant proposal would create "insidious and artificial" distinctions between certificate and degree programs and add administrative burdens.

"It's just a bad policy from top to bottom," said David Baime, the director of governmental relations at the American Association of Community Colleges.

President Clinton's Middle Class Bill of Rights also includes a proposal to let families with incomes below $120,000 deduct up to $10,000 in tuition expenditures per year on their federal income-tax returns. Aides say there is some support among Republican for such a tax break, but there is concern that it could prompt colleges to raise tuition, negating any benefit to students and families.

Even college official are dubious about the idea. Late last month, the American Association of State College and Universities released an analysis suggesting that the tax deduction would disproportionately benefit upper-income taxpayers. Some advocates have suggested adding a tax credit for low-income families who make too little to benefit from a deduction.

"It is exactly the wrong remedy for a problem that the Administration has correctly identified," said Barmak Nassirian, the assistant director of governmental relations for the state colleges' group.

Mr. Longanecker disputed claim that the deduction would help only rich families. "This is clearly and unapologetically focused on the middle class," he said. "We saw that there was an awful lot of frustration from the middle class, and we think this makes a lot of sense."

Meanwhile, students are getting the message that change is brewing. Higher-education associations are working to rally student support, and some student groups have staged protests in recent months.

When Susan Gorman's father died last spring, she thought she might have to drop out of Georgetown University until the school increased her loans, grants, and work-study aid. But now the sophomore is once again worried about financing her education.

"We worried about it all the time, but at least we didn't have to worry about paying more for loans or not getting work-study," she said.

Vol. 14, Issue 26, Pages 1, 34-35

Published in Print: March 22, 1995, as Radical Proposals Set Stage for Student-Aid Battle
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