Senator swings loan scythe

November 3, 1995

The American Council on Education, which represents more than 1,500 colleges and universities, was engaged last week in an all out effort to stave off cuts in student loan assistance amid the battle between the White House and Congress over the United States budget.

Republicans have pledged to balance the US budget by 2002, and as part of that effort have banked on pruning $10 billion from student aid programmes. "We've spent the entire day trying to manipulate the outcome in our direction," said one ACE lobbyist, as she watched the Senate gear up for a first budget vote.

Efforts were focused on rounding up sympathetic senators to soften the blow by amending the legislation on the Senate floor.

The federal government provides about $35 billion in grants and loans to US students, with nearly three-quarters of it in loans. Republicans claim the savings, stretched out over seven years, will be achieved by reorganisation rather than painful cutbacks.

But their critics contend they will add to a dramatically mounting debt burden. Since 1990, US students and their families have borrowed close to $100 billion, or as much money as they did in the past three decades combined, says a recent report.

There are two reasons for this phenomenal growth, say experts. Tuition costs at both public and private colleges in the have risen at a consistently faster rate than disposable incomes, about 6 per cent this year alone. And in the first two years of the Clinton administration government loans became more generous.

While educators stress that a majority of students spend less than $3,000 in a year, the costs of a four-year degree at prestigious institutions now routinely breaks the $100,000 mark.

About 6.5 million students, nearly half of all those enrolled in college, were relying on loans in 1994, when borrowing reached nearly $25 billion. Evidence suggests that mounting loans are one factor in high college dropout rates, particularly among first generation students from poor families for whom the immediate debt overshadows long-term income gains from a bachelor's degree.

In addition, say experts, within the past ten years the generational responsibility has shifted from parents on to the backs of the students themselves, who then enter the job market facing large interest payments.

Higher education lobbyists, working with sympathetic political figures from liberal Democrat Senator Edward Kennedy to Republican James Jeffords, have already fended off Republican proposals.

Many have emanated from the office of Senator Nancy Kassebaum, Republican chair of the Labour and Human Resources Committee. Her job is to find the required cuts, and she has called on postsecondary institutions to "take a hard look" at their own costs before crying foul.

Senator Kassebaum planned initially to require US colleges to pay a 2 per cent charge back to the government on every loan to their students. Opponents condemned the idea for penalising institutions who take on needier students. Eventually it was voted through at a reduced rate of 0.85 per cent, or an $85 tax on every $10,000 in loans.

Republicans are also seeking to raise the interest rates on loans to parents, which would rise to close to 10 per cent. They want an interest subsidy to students for the first six months after they graduate abolished, something that will add an extra $1,000 to the average undergraduate's debt, or more for a graduate.

Most important, say critics, is a provision to limit the direct loan programme, which allows students to borrow directly from the US government rather than getting a government guaranteed loan from a bank.

Both students and their colleges have found it far easier to deal with direct loans than with an estimated 700 banks which used to dominate the system.

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