Higher-education officials last week generally saw promise in a new college-loan program proposed by Gov. Michael S. Dukakis of Massachusetts, the Democratic Presidential candidate.
But the officials cautioned that details of the plan remain sketchy, and said that many questions need to be answered before it could be implemented successfully.
“It’s a bold move, and I applaud it,” said Richard E. Anderson, director of the Forum for College Financing, a federally funded research group based in New York.
However, Mr. Anderson added, “It will require some thoughtful and careful staff work and political work to get it in place.”
Mr. Dukakis’s plan would allow students to repay college loans over their working lifetimes by deducting a fixed percentage of income. (See Education Week, Sept. 14, 1988.)
Modeled on the Social Security payroll-tax system, the Student Tuition and Repayment System (stars) is aimed at relieving young workers of a heavy burden of college debt.
College officials said last week that the plan would provide a new option for middle-income families, who have been increasingly unable to finance their children’s education.
“This proposal will answer a constituency not being fully served by student-aid programs,” said Richard Novak, vice president for governmental relations of the American Association of State Colleges and Universities.
Richard Jerue, staff director for the House subcommittee on postsecondary education, also lauded the idea that stars would supplement existing programs, instead of replacing them.
‘I think the system we have is fundamentally a sound one,” he said. “Its major problem is that Reagan budgets have permitted a situation where grant funding hasn’t kept pace with inflation or the cost of college.”
While voicing support for the new proposal, Dale Parnell, president of the American Association of Community and Junior Colleges, emphasized that full funding of existing loan and grant programs for needy students was more important for members of his organization.
“The new President must fully fund these programs to assure that college is accessible to lower-income individuals,” Mr. Parnell said.
The Yale Experience
Secretary of Education William J. Bennett and other critics of Mr. Dukakis’s plan have portrayed it as resembling a loan system Yale University tried and dropped in the 1970’s.
Yale’s inability to persuade students to participate in the program, Mr. Bennett said, demonstrated that the concept is “unworkable.”
But Haskell Rhett, vice president for student financial services of the College Board, said that the Yale experience was irrelevant to the current proposal.
“The Yale program did not work not because of adverse selection, but because of capitalization,” he said. “You have to provide a lot of capital at the front end, long before you get the compensating payback.”
A similar federal effort, Mr. Rhett predicted, would attract sufficient capital from private lenders.
“Lenders will find this an attractive place to put capital because of the government guarantee,” he said.
But lenders may not be eager to put up money to begin the program, warned Fritz M. Elmendorf, a spokesman for the Consumer Bankers Association.
“If it is not supposed to cost any money, how do you get the program up and running?” Mr. Elmendorf asked. “I don’t think our members will contribute start-up costs. There has to be some kind of funding.”
Costs and Benefits
Other critics have questioned the fairness of the plan, since those who earned more over the course of their working lives would subsidize the loan costs of lower-income borrowers.
Stars would require some borrowers to repay more than they borrowed, while others would pay less, according to Dukakis aides.
Such a system is equitable, according to Mr. Anderson of the Forum for College Financing.
“It isn’t unreasonable to say that if you are successful, you should pay back a little more than most people,” he said.
Mr. Rhett also argued that the rate of defaults on loans would be lower than under existing programs, since a borrower’s repayment requirements would be pegged to his or her ability to pay.
“It’s more rational to have payback tied to income,” he said. “A significant part of the default problem is the fact that folks don’t have the money to pay the loans back. It isn’t ill will or criminal intent.”
Even so, some higher-education representatives see a danger in the plan’s emphasis on the obligation of students to repay college costs. Robert H. Atwell, the president of the American Council on Education, has argued that taxpayers should continue to bear at least part of the burden of college costs.
“I am concerned that we are developing the idea that it is the student who ought to pay for the benefits of a college education,” he said at a Congressional hearing last week.
Such a notion, he added, ignores the fact that “it is society that benefits” as well when a young person obtains a college education.
College officials also noted that many aspects of the new system,4whose details have yet to be determined, could make administration of loans cumbersome and expensive.
“Who pays interest on loans while students are in school?” asked Mr. Elmendorf of the bankers’ association. “Somebody has to do that.”
In addition, said Mr. Rhett, government agencies must get involved in collecting repayments, which will require staff time.
Still, Mr. Rhett said he was pleased that Mr. Dukakis “put the plan on the table for discussion.”
“There are all sorts of administrative questions,” he said, “but I don’t think they should stop the discussion.”
