EDUCATION : Federal Belt-Tightening Plans Put Squeeze on Student Aid

As Congress wrestles with various plans to help balance the federal budget, college-bound youths and their parents can be certain of one thing: The federal government will reduce its contribution to student financial aid programs.

Under House and Senate versions of the budget, now being reconciled in a conference committee, government aid to students could be cut between $7.5 billion and $20 billion over the next seven years. President Clinton’s budget, which has virtually no chance of winning approval in the GOP-dominated Congress, would eliminate some scholarship and fellowship programs, but would increase funding for other student aid programs.

Student aid is being targeted for cuts by Republicans who believe that nearly everyone should share in the burden of reducing the federal budget deficit. Many lawmakers also say that because college graduates have far greater earning power, it is to some extent unfair to have their educations subsidized by lower-paid taxpayers.

The cuts come at a time when studies show that steep hikes in student fees and tuition are forcing students to borrow more to stay in school. On University of California campuses, annual student charges went from an average of $1,812 in 1990 to $4,103 in 1994.

An American Council on Education study showed a 57% increase in the amount of money students borrowed from fiscal year 1992 to 1994. About half of the nation’s college students receive some type of federal assistance, which totaled $32.5 billion this year.

Allison Jones, director of access and retention for the 320,000-student California State University system, said previous congressional proposals to cut student aid were not as harsh. They would have cut aid for certain programs, but added an equivalent amount to others.

The deepest cut is in the form of a House proposal to save $18 billion over the next seven years by eliminating interest subsidies given to most borrowers in the Stafford Loan Program.

Stafford loans of up to $23,000 a year are given to undergraduates from a wide range of economic backgrounds. The government usually pays interest on the loan while the students are in school and for a grace period of six months after they stop taking courses. Once the grace period expires, students are responsible for repaying the loan, with interest that accrues from that date forward.

Ending the subsidy--which costs the federal government about $2 billion a year--would add 18% to 27% to a student’s total debt, according to the Department of Education.

Republicans argue they are not overburdening students by eliminating the subsidy. Rep. John A. Boehner (R-Ohio) said that during the life of a 10-year loan, eliminating the subsidy would add about 68 cents a day.

Republicans also contend that students should have no problem paying their loans back because they will earn $600,000 more over a lifetime than someone without a college degree.

The Senate plan would save a comparatively small $2.5 billion from Stafford loans over seven years. It would continue the interest subsidy while students are in school but could shorten or eliminate the six-month grace period. The Senate also could cut the $1-billion annual allowance the government pays to banks as an incentive to provide loans to students.

Clinton has proposed saving $5.2 billion from the Stafford program by converting fully to a direct lending system that the federal government began last year at 104 colleges and universities. Under that system, student loans are made directly by the government, cutting banks and guarantee agencies out of the process but not reducing the total amount of money students receive.

Another aid revision being considered is freezing government funding for Pell Grants at a level of $6.4 billion a year for seven years. Pell Grants of up to $2,300 a year--money that does not have to be repaid--were awarded to 3.7 million economically disadvantaged students in 1994.