Measures Would Curb Student Loans

By Mark Walsh — August 02, 1989 3 min read

Washington--Students in their first year of postsecondary education would be barred from receiving federal supplemental loans, under a cost-saving measure approved last month by the House Education and Labor Committee.

The proposal, part of omnibus budget-reconciliation legislation moving through the Congress, would save an estimated $10 million in fiscal year 1990 and $115 million in 1991.

The Senate Labor and Human Resources Committee also has approved curbs in the Supplemental Loans for Students program, but did not go as far as the House committee. The Senate panel voted to delay disbursement of supplemental loans for 30 days after enrollment.

The committees were required by the 1990 budget resolution to submit measures to cut spending on programs in their jurisdiction.

Although the supplemental-loan program is much smaller than the Stafford student-loan program, it has expanded rapidly in recent years, from $259 million in loan volume in 1985 to nearly $2 billion last year.

Supplemental loans are easier to obtain than Stafford loans, since borrowers are not required to prove financial need or to show that the money will be used for college costs.

Loans of up to $4,000 per year are available under sls, compared with $2,625 per year under the Stafford program. Interest rates are higher for supplemental loans, however.

High Default Rates

Members of Congress have expressed concern about high rates of default among sls borrowers, many of whom are proprietary-school students who drop out or are unable to repay their loans, which come due much sooner than Stafford loans. Loans to first-year students accounted for more than half of all sls loans this year.

Some House committee members expressed concern about making such a major change in the supplemental-loan program without holding full-scale hearings. The committee voted to end the restriction after two years in order to assess its impact.

The House provision is “proving very controversial,” said Senator Edward M. Kennedy, the Massachusetts Democrat who chairs the Labor and Human Resources committee.

The measures approved by the two committees contain a number of other differences, which will have to be worked out in conference after both houses pass their budget-reconciliation bills.

Section 89 Changes

The House Ways and Means Committee last week continued negotiations on the largest section of the reconciliation package. Provisionsel10lalready approved by the committee include:

Modifications to Section 89, the tax provision that seeks to stop discrimination in fringe benefits between different pay levels of employees. Employers, including school districts, have complained that the procedures used to determine discrimination are extremely complicated, and the Congress is under increasing pressure to modify the rules.

Under a plan adopted by the Senate as part of a child-care measure, a benefit plan would be acceptable if it was made available to 90 percent of employees, and if workers paid no more than 40 percent of the premiums. The House committee’s plan would set the limit at 50 percent of premiums and cap annual payments required from workers making less than $20,000.

Both bills would delay implementation of Section 89 until January 1990.

Restoration, through 1991, of a tax break that allows workers to exclude from their taxable income up to $5,250 of tuition paid for them by employers. The provision would be retroactive to Jan. 1, 1989.

Two competing child-care initiatives.

Meanwhile, the House Energy and Commerce Committee has approved a reconciliation proposal that would significantly expand Medicaid health coverage of poor mothers and children.

The bill, reported last month, would require states to provide Medicaid coverage by July 1, 1990, to all children under the age of 6 in families with incomes below the federally defined poverty level.

States would also be required by 1993 to extend coverage to include all pregnant women and infants up to a year old whose family income was at or below 185 percent of the poverty line.

According to Congressional Budget Office estimates, the cumulative cost of expanding Medicaid coverage to include these children and women between 1989 and 1994 would exceed $1.8 billion.

Staff Writers Nancy Mathis and Ellen Flax contributed to this story.