Ease the College Tuition Crunch : Federal Policy Reversal Is Unfair and Shortsighted

“There is no free lunch; someone has to pay the bill,” said a Reagan Administration official in defense of the latest proposal to reshape college student aid.

Indeed, someone has to pay. College costs must be shared by parents, students and taxpayers. The Administration wants to shift most of the burden to students, through borrowing. Minimal grant support (between $200 and $2,100) would be available for those with family incomes below $20,000, with market-rate loans covering the rest for low- and moderate-income students. The Administration hopes to cut more than $3 billion in student assistance--the Education Department’s contribution to deficit reduction.

College loans, along with government and household debt, have ballooned in the past decade. Today’s students are borrowing to an extent unknown among previous generations. A recent report for the Joint Economic Committee of Congress found that we know little about the effects of growing student indebtedness. There are risks for individuals and society if the prospect of heavy borrowing steers students away from public service careers or deters others from entering higher education at all. College enrollment among minority groups has been sliding as it is.

Loans are an inescapable element in meeting college costs, but how far are we going to push debt financing of students? And which students will be saddled with the biggest debts?

The Administration’s answer to these concerns has surface appeal: “income-contingent” loans designed to ease the burden for those less able to repay. Monthly payments for borrowers with low earnings would be reduced and stretched out over more years. This seems to make a lot more sense than the straitjacket of current federal loans, which must be repaid in equal installments within 10 years after graduation. But the income-contingent approach is untested, likely to be much more complicated to implement than it appears at first glance, and (along with most of the Administration’s student aid proposals) unlikely to go far in Congress.

Meanwhile, the policy drift in student aid continues. The federal commitment to educational access has been turned 180 degrees. In 1965 the government undertook to remove barriers to higher education for the needy through grants and work-study, while helping the middle class with basically unsubsidized loans of convenience to meet cash-flow problems. In recent years grant assistance (once 80% of available aid) has become more scarce (now less than 50%), and needy students increasingly have had to resort to large-scale borrowing.

At the same time, middle-income families are being squeezed out of the Guaranteed Student Loan program, which was originally designed for them. Now subsidized to keep private lenders in the program, GSLs cost the government up to 50 cents on every dollar. Soaring loan costs have gradually forced Congress to limit eligibility; many students with family incomes of more than $30,000 will lose their GSLs this year.

Instead of concentrating so heavily on loan subsidies, what about more support for students working their way through college? Oddly, the Administration proposes to abolish federal work-study aid. Some students already are working as much as they can, but surely we should be broadening, not constricting, student options for combining part-time employment with academics.

One way to strengthen the tie between work and college aid may be through national service. Students would receive benefits in return for a commitment to serve the nation or a community, either through the military or some other area of public need.

And shouldn’t family savings figure in the tuition equation? In the past, the Administration has proposed “education savings accounts,” which would give tax breaks to parents who put money away for their children’s education. But the recent tax-reform movement in Washington seems to have pushed this idea aside.

States and institutions are advancing their own strategies, including tuition prepayment plans. Parents could invest in a fund that would guarantee college tuition payments for their children. Duquesne University was the first school to announce such a program; Michigan has led the way in developing a statewide plan.

The good news is that this “tuition futures” concept sends the right signal to the public: Plan ahead. The bad news is that there is no certainty about the key assumption that earnings on the invested funds will be tax-exempt. Such plans will help only the small proportion of families who have current resources to invest. The drawback is clear: Parents who buy tuition futures will have predetermined their children’s college choices, and the state plans will likely restrict students’ mobility.

To equalize college opportunities, we need national policies to address a national priority. Don’t be surprised, as 1988 draws near, if presidential candidates float some of these proposals, such as national service or a tuition prepayment plan. We can use the debate. It’s time to renew our commitment to an education system that promotes wide access and freedom of choice.