Plan to Restrict Loans for Students Told

President Reagan will ask Congress to deny federally guaranteed loans to all college students with family incomes above $32,500, a move that would lock out hundreds of thousands of students from the loan program, an Administration source said Saturday.

Reagan’s fiscal 1986 budget would also restrict eligibility for Pell Grants--outright federal stipends of up to $1,900 a year--to students from families with incomes of $25,000 or less.

It would also seek to clamp an overall $4,000 per year ceiling on the total federal aid--including loans and grants for any student, regardless of how poor his or her family is, according to the source, who spoke on condition of anonymity. The ceiling would also affect graduate students, who now can borrow up to $5,000 a year, twice as much as undergraduates, in guaranteed loans.

Average college costs are approaching $10,000 at many private institutions and $5,000 at public universities.

Students barred from the Guaranteed Student Loan program--under which the loans are free while the borrower remains a student, and the interest is only 9% afterward--could turn to an auxiliary loan program for parents that extends loans under much less favorable terms.

Under that program, borrowers are charged interest while they are still in school at rates 3.5 points above the interest rate on Treasury bills--a total of about 12% now--and repayment must start immediately.

Included in Budget

Reagan will include the student aid cutbacks in the budget he is scheduled to send to Congress Feb. 4. Most of the cuts would affect loans and grants for the academic year starting in September, 1986, although Reagan, in his attempts to cut domestic spending, may also seek rescissions that could affect the aid budget for this fall.

More than 5 million college students get some federal help each year, including 3.3 million who borrowed more than $7 billion in guaranteed loans last year. Banks and other private lending agencies make the loans, but the government ensures their repayment and pays all the interest while the borrowers pursue their education.

Congress has resisted past Reagan Administration efforts to scale back the loan subsidies, although in 1981 it did require students from families with incomes above $30,000 to demonstrate that they needed the loans.

The Office of Management and Budget originally sought to draw the new eligibility line at $30,000. Patricia A. Smith, director of legislative analysis for the American Council on Education, estimated that “probably 500,000 would lose eligibility” if the line were drawn at $30,000.

A $32,500 ceiling “might reduce that 500,000 by 30,000 or 40,000 at most,” she said.

She also estimated that “about 150,000 students from families with incomes over $25,000” get Pell Grants, though they usually are at the lower range of the awards, which start at $200.