THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, July 21, 1995 TAG: 9507210515
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY PHILIP WALZER, STAFF WRITER
LENGTH: Long : 129 lines
Half a 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, undergraduate and graduate 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 over 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.
Students still would not have to make payments while they were attending graduate school, although interest would begin accruing. 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 already has the support of key members of Congress as a compromise in the battle over changes in the student loan system.
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 recommended a series of other cost-cutting measures affecting undergraduates that would raise a total of $10.4 billion over seven years.
The proposal on the exemptions has stirred a debate between Republicans, and college and student leaders over what's best for the nation: a balanced budget or financial support to attend college.
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 Merkowitz and others say the compromise could dissuade many people, especially low-income students, from continuing to graduate school and still could drive up loan defaults.
``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 in Virginia Beach that does not offer graduate studies, says 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, which 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 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 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.
Supporters of the change say graduate students are best able to afford the increases because they're more likely to end up earning more than most other Americans. Currently, ``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, ``The problem is, 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 toward better-paying jobs, to the detriment of society, said Kevin Boyer, executive director of the National Association of Graduate-Professional Students outside Chicago. Young doctors might choose to become specialists, instead of general practitioners; more teachers might take higher-paying jobs in the suburbs, instead of at inner-city schools.
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, says 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. The fee, which is charged to all students when they take out a loan, would go up 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 had scheduled a reduction of 0.5 percentage points in the interest rate on student loans in 1998. 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 the committee's recommendations on how to make the cuts.
Merkowitz says there's not many more palatable alternatives to come 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 Merkowitz said that might not be enough to spark a veto. And even if Clinton vetoes the bill, he may take a stand on other cuts in the bill.
``Everybody understands you have to deal,'' he said. ``But we're going to try to do the best we can at every stage and with every player.'' ILLUSTRATION: Graphic
WHAT THIS WILL COST:
[For complete graphic, please see microfilm]
KEYWORDS: STUDENT LOANS COLLEGES AND UNIVERSITIES
GRADUATE SCHOOL by CNB