Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, July 24, 1995 TAG: 9507240118
SECTION: VIRGINIA PAGE: C-1 EDITION: METRO
SOURCE: PHILIP WALZER LANDMARK NEWS SERVICE
DATELINE: LENGTH: Long
A half-million graduate students would face 20 percent to 50 percent increases in loan payments under a deficit-reduction compromise now before Congress.
The proposal would allow the government for the first time to charge interest on ``subsidized'' Stafford loans while recipients are still in graduate school. Now, students with subsidized loans aren't charged interest until six months after they leave school.
The change would raise $4 billion for the U.S. government in seven years. For a doctoral student borrowing the maximum amount, monthly payments would rise nearly 50 percent, from $793 to $1,167, according to the American Council on Education, the leading lobbying group for universities.
The plan would affect all loans taken out after Oct. 1.
The proposal still must be approved by both houses of Congress and President Clinton, but it has the support of key members of Congress as a compromise in the battle over changes in the student loan system.
Higher-education officials are glad the exemption has been saved for nearly 5 million undergraduates. ``We have lessened the potential for a serious impact on access'' to college, said David Merkowitz, spokesman for the American Council on Education. But he and others say the compromise could dissuade many people, especially low-income students, from continuing to graduate school.
``I think it's going to keep some people away,'' said Bryan Rowland, president of the Graduate Student Assembly at Virginia Tech, which represents 4,500 graduate students in Blacksburg. Rowland, a doctoral student in vocational and technical education, receives an $8,000-a-year subsidized Stafford loan.
``If you keep people out for financial reasons,'' he said, ``to me it's going to drop the quality of what's considered the best university system in the world.''
But Mark Dreyfus, president of ECPI College of Technology, a two-year technical school that does not offer graduate studies, said the educators' predictions are overblown.
``I think it's really insignificant in the large scope of things,'' he said. ``I don't think people make decisions about going to graduate school based on loan subsidies from the government. ... As long as there's availability of loans from the government, students will continue to take advantage of them and continue to go to school.''
Cheri Jacobus, spokeswoman for the Republican-led House Committee on Economic and Educational Opportunities that will next take up the plan, said it will end up helping graduate students financially. ``When you look at what a balanced budget does - student loan payments would drop, interest rates would drop - balancing the budget is going to be much more important to them right now than giving them the taxpayer subsidy.''
The House had pushed to remove the exemption for undergraduates as well, while some Senate leaders wanted to target only graduate students. A conference committee adhered to the Senate's approach, but it recommended a series of other cost-cutting measures that would raise $10.4 billion in seven years.
The loans generally go to lower- and middle-income students. For a doctoral student borrowing the maximum amount of $65,500 over the course of his or her graduate studies, eliminating the exemption would add $45,000, increasing the total debt from about $95,000 to $140,000, according to the American Council on Education. A student in the first year of graduate school would shoulder a 20 percent increase.
Supporters of the change say graduate students are best able to afford the increases, because they're more likely to earn more than most Americans. Now,``the high school graduate is footing the bill for the subsidy,'' Jacobus said. ``They're footing the bill for future high-earners and millionaires.''
Yet, Merkowitz said, ``An awful high percentage of people who rely on these loans are not going into these lucrative professions. They're going into teaching, social work.''
To pay the higher loan bills, students might shift their career plans, to the detriment of society, said Kevin Boyer, executive director of the National Association of Graduate-Professional Students outside Chicago. More teachers might take higher-paying jobs in the suburbs, instead of at inner-city schools, for instance.
The congressional conference committee offered four other suggestions to bring more money back to the government:
Start the meter earlier. Undergraduates and graduate students enjoy a six-month grace period after they leave school, when they neither get charged interest nor have to pay off the loans. They'd still get that grace period, but interest would start accruing the moment they left school. That, said the American Council on Education, would add $1,000 to the debt of an undergraduate borrowing the four-year maximum of $17,125 and $3,800 to the debt of a grad student borrowing the maximum $65,500.
Increase the origination fee charged to all students when they take out a loan by 1 percentage point, from 4 percent to 5 percent. For a student who borrowed $15,000, that would add $150 to the cost.
Drop the rate reduction. The government set a reduction of one-half of 1 percent in the interest rate on student loans in 1988. Rates are set annually, but the council estimates that eliminating the decrease could add a total of $1,030 in debt for an undergraduate who borrows $17,125 and an extra $3,100 for a graduate student who borrows $50,000.
Cut direct-lending subsidies. Colleges in the federal pilot project in ``direct lending,'' which cuts out banks and guarantee agencies from the loan process, now get $10 per loan from the government. That would be dropped.
The congressional panels that will take up the bill must follow the conference committee's target of $10.4 billion in savings in the student loan program, but they aren't necessarily bound by its recommendations about how to make the cuts.
Merkowitz said there are not many palatable alternatives for coming up with that kind of money in the program, but he has one idea: the $3 billion in annual subsidies to banks and guarantee agencies. ``The question we've had all along is: Why aren't they sharing the pain?'' he said.
The panels are expected to complete their work in September and send the bill, which also covers such areas as welfare and tax reform, to Clinton.
The president has voiced support for keeping the interest exemption, but even if he vetoes the bill, he may take a stand on other cuts in it, Merkowitz said.
by CNB