Dukakis Offers Plan to Finance College for All : Federally Guaranteed Loans Would Be Repaid in Small Annual Sums Over Working Lifetime

Democratic presidential nominee Michael S. Dukakis proposed on Wednesday an innovative, potentially sweeping plan for a self-financing, federally guaranteed student loan program that he said would allow any qualified student to attend college.

The proposal, his most specific on any campaign issue, would permit students to repay bank loans through payroll deductions over their working lifetimes. Aides said the plan would supplement existing federal student loan programs and would cost the government nothing.

Reaching Out ‘to Millions’

“It will reach out to millions of youngsters from middle-income families who are not eligible for grants and loans today or who chose not to take advantage of loans because they don’t want to start out in life burdened by tens of thousands of dollars of debt,” Dukakis said.

Education policy officials had mixed reactions to the plan, calling it interesting and innovative but saying they would have to see more details before making judgments about how it would work.

Many middle-income students find that existing federal programs fall “way short of what the costs are” for a college education, David Merkowitz of the Washington-based American Council on Education said. Dukakis’ proposal is an “interesting” way of closing that gap, he said.

Campaign aides hoped the proposal, outlined at Kean College here, and an evening speech on Middle East policy at the B’nai B’rith national convention in Baltimore would help Dukakis reinvigorate a campaign that has appeared to be stalled in recent weeks. In particular, they hoped the plan would appeal to what could be a key voter bloc this fall--baby-boom generation voters, many of whom are beginning to rear families and are apprehensive about being able to send their children to college.

Dukakis has faced mounting criticism for providing too few specifics in his campaign and for spending too much time at home. Aides said the Massachusetts governor will now cut the time he spends at the Statehouse to one day a week from three and will step up his campaigning.

The complex student loan proposal was announced as Dukakis and his running mate, Texas Sen. Lloyd Bentsen, sought in separate appearances to claim education as a Democratic issue and to appeal to middle-class voters.

But the day also provided evidence of Dukakis’ continuing problems. Although the campaign made an unusually strong attempt to get press coverage of the loan story, providing five advisers to brief reporters and handing out a fat sheaf of fact sheets and congressional endorsements, aides gave contradictory details all afternoon.

Designed to Fill Gap

Dukakis’ loan plan would be called STARS, for the Student Tuition and Repayment System. Although many details remained vague, aides said the plan would allow all students to receive federally guaranteed loans from banks or other financial institutions. The plan is designed to cover a major gap in existing federal college aid programs.

Currently, with total annual college costs averaging about $6,200 nationwide for public colleges and more than $13,000 for private colleges, many families are finding the cost of higher education to be a severe drain. The problem is likely to worsen over the next decade, with college costs expected to rise faster than personal income.

The federal government now provides grants to some low-income students, and the guaranteed loan program provides low-interest loans to students who meet income tests. Many middle-income families do not qualify for the guaranteed loans and, even if they do, the largest loans permitted under the program fall far short of the total cost of a college education.

In addition, many students find themselves graduating with large debts that they must immediately begin repaying, at times with payments of hundreds of dollars a month. This is one of the reasons the program has been plagued by a high default rate.

Under Dukakis’ plan, by contrast, students would repay their loans after joining the work force through a payroll withholding plan similar to Social Security.

An individual’s payments would be assessed as a fraction of his or her annual earnings, although an income cap--as yet undetermined--would be set.

“What people worry about now is they’ll have low income and crushing debts” when they are graduated, Victoria Rideout, a campaign issues adviser, said. “That can’t happen under this system.”

Because all students graduating in a given year would pay the same rate of interest, students whose college educations led to more lucrative careers would, in effect, help subsidize the loans of those whose earnings are less.

Proposed Similar Plan

Because “earnings are the pay-back from college, if your education paid back more than mine, there is a logical reason to say that you should pay more,” said Brookings Institution economist Robert Reischauer, who proposed a similar plan several years ago.

The federal Bureau of Labor Statistics estimates that, over a lifetime, a college education yields a person an extra $660,000 in income.

Unless the borrower elects to pay a premium to “buy out” the loan, the payments would continue as long as the individual works. Those without earnings--such as unemployed people and parents staying home with children--would not have to pay.

“A generation ago, we would not have been able to do this,” Dukakis’ education adviser, Robert Schwartz, noted. “All the men would have ended up subsidizing all the women” who stayed home with children. Currently, about 85% of college-educated women work outside the home, he said.

Lawrence Summers, a Harvard economist who is Dukakis’ chief economic adviser, said the repayment rate would be assessed for each $1,000 borrowed. “On a very rough basis,” he said, the repayment rate would be one-eighth of a percent to one-quarter of a percent of income per $1,000 borrowed.

As an example, Summers said, if a student borrowed $8,000 and the pay-back rate was one-eighth of a percentage point per $1,000, on graduation the student would begin paying 1% each year of subsequent income. If that student’s annual income were $45,000, the year’s payment thus would come to $450. If the loan were for $16,000, the pay-back rate would be 2%, and the year’s payment for someone earning $45,000 would be $900.

The program would be available to any student in an accredited college, graduate school, technical or vocational school.

In a campaign that has grown increasingly personal and negative, Dukakis did not miss the opportunity to criticize his opponent.

“Where was George Bush while his Administration was doing its best to slam the door of college opportunity in the face of millions and millions of young people across this country?” Dukakis asked the overflow crowd at Kean. “George was right there--all the time. Not doing and not saying a thing.”

Later, speaking at the B’nai B’rith convention several hours after Bush had addressed the meeting, Dukakis added some harsh words about his opponents’ Mideast policies.

“The Republicans have sold AWACS to Saudi Arabia, Mavericks to Kuwait, Stingers to Bahrain and billions of additional dollars worth of sophisticated arms to Arab countries that refuse to make peace with Israel,” he said.

“George Bush has supported those sales, and Dan Quayle has voted for them. Lloyd Bentsen and I are going to say no to Arab shopping lists that endanger the security of Israel.”

Dukakis pledged also that his Administration would “never recognize a unilateral declaration of a Palestinian state or government in exile.”

The statement was considerably stronger than what Dukakis had said last April when campaigning in the New York primary. He drew fire then from some Jewish leaders for refusing to rule out the creation of a Palestinian state, saying the United States should not try to dictate the matter.

In his Baltimore speech, he said that the Palestine Liberation Organization is not “a fit partner for peace. There can never be a role in negotiations for the PLO unless it renounces terrorism . . . .”