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White House, Congress Begin Student Financial Aid Debate

By Rene Sanchez
The Washington Post

A profound debate over the federal government's role in helping students pay for college has begun between the Clinton administration and Republican leaders in Congress, and its outcome could greatly change the size and scope of financial aid for millions of current and prospective college students.

It is not simply a political battle over money, although Clinton is proposing to expand student aid at a time when Republicans are intent on making deep tax and budget cuts.

Each side is framing the debate in urgent terms, for over the last decade soaring college costs have forced an unprecedented number of college students to rely on loans to help pay tuition. About 6.5 million students, close to half of the nation's college enrollment, have loans.

"In some ways this is the most uncertain time for federal higher education policy in 30 years," said Terry W. Hartle, a vice president of the American Council on Education, the largest organization representing U.S. colleges.

Along with a tax deduction for college tuition that he announced late last year as part of his "Middle Class Bill of Rights," Clinton wants to spend more money on Pell Grants and other aid awards for needy students. He also is seeking rapid expansion of a program launched last year that allows students to get college tuition loans directly from the federal government.

Administration officials say the package, will increase access to higher education for many students, offset tuition costs, and reduce by billions of dollars what the government spends supporting bank-run loan programs.

But Republican leaders, charging that Clinton's plans are either too costly or give the government far too much control of college loans, are vowing to block or limit them and enact their own.

"This whole effort is very political," said Rep. William F. Goodling (RPa.). "It all sounds great, until you stop and take a close look at what they want to do."

One GOP cost-cutting proposal is to eliminate the subsidy the government pays to cover interest on tuition loans while students are in college. Some Republicans say eliminating the subsidy could save the government more than $9 billion in five years, but Clinton officials say that would burden students with too much debt.

Overall, Clinton wants to boost the federal money available for college financial aid next year by 10 percent to $35.8 billion.

Skeptics in Congress and elsewhere say those moves, and the president's proposed college tax deduction, could lead to increases in tuition or increase the budget deficit.

That is a primary reason Republicans are targeting the interest subsidy the government pays to banks each year for student loans. This year's price tag is $2.2 billion.

"Everything has to be on the table if we're serious about balancing this budget," Goodling said.

But Clinton officials, backed by an alliance of higher education groups, say students would be hard hit by the plan. The American Council on Education estimates that for an undergraduate student who borrowed the maximum amount allowed under federal rules for four years, debt would increase from about $17,000 to $20,500 - a 20 percent jump.

Critics also say eliminating the subsidy would impose a great burden because the average income of families getting federal student loans is only $35,000.

Another college aid battle emerging between Clinton and GOP leaders is over the Education Department's new direct lending program. Students who attend a college participating in the program can bypass banks entirely and get loans from the federal government through a campus financial aid office.

Under direct lending, it is easier for students to pay back loans over a much longer time than the standard 10-year plan, depending on their income after college. Skeptics say that could lead students into more interest and thus more debt.

Clinton officials say direct lending saves students time and money and will cut the federal budget by $10 billion over five years because the government would no longer pay subsidies and incentives to banks and loan guarantors to provide student loans.

But Republican leaders say Clinton officials greatly exaggerate the savings. They also doubt that the government, particularly the Education Department, can manage such a massive program. House Speaker Newt Gingrich (RGa.), said this month that he would like to abolish direct lending. Goodling has introduced a bill to limit its scope and test its value for several years. "The department has no expertise to undertake something like this," he said.