PERSPECTIVE ON HIGHER EDUCATION : Learn Now, Pay Later and Later : Generous loan programs have encouraged college costs to rise, burdening students with unprecedented debts.

Having dug itself into a trench of unmanageable debt, Washington now seems bent on handing out shovels so that American college students and their families can do likewise.

The thrust of the federal policy over the past decade has been to encourage students to borrow more money for post-secondary education. This has encouraged rising college costs and pushed more Americans into unmanageable debt.

The trends are as follows:

% Virtually anyone can borrow. Thanks to the Higher Education Act amendments of 1992, eligibility criteria are so lenient that any family without an adverse credit history probably qualifies for a loan.

% Shopping for loans is now painless. Under the new direct loan program, Washington sends a pot of money to colleges, which then distribute it to eligible students. Banks have countered by simplifying their lending procedures.

% Debt limits are up near the ozone layer. Students can borrow up to $46,000 as undergraduates and up to $138,500 if they stay around for a graduate degree. Parents can borrow the full cost of a child’s undergraduate degree, including room and board.

% Repayment is user-friendly. Congress has mandated an array of flexible repayment options--fixed, graduated and income-based--that invite borrowing. Under the “pay as you can” approach, students can take up to 25 years to settle the debt, shelling out as little as 4% of their annual gross income. If these generous terms turn out to be too rigorous, the federal government forgives the loan and lets taxpayers pick up the tab.

Given these trends, it comes as no surprise that borrowing for college is booming. Between 1985-86 and 1994-95, the total dollar amount nearly doubled from $13.5 billion to $25.7 billion in 1994 dollars. More than one-fifth of the $183 billion in loans since the federal loan program began in 1966 was taken out in the past two years.

Before breaking out the champagne to celebrate a spectacularly successful government program, however, we might pause to consider some of the consequences of these policies.

“Pay as you can” sounds wonderful until you look at the numbers. By making college more “affordable” in the short run, we have increased the total cost of college over the long haul.

Debate over federal loan policy usually focuses on defaulters, but consider the effects of debt on the overwhelming majority of graduates who dutifully pay off their obligations. Most will be struggling with college debt just when they should be investing in homes and setting up their own families.

Heavy debt management costs force many students to seek out high-paying jobs rather than socially useful ones. I interviewed a young couple who fell in love at medical school and who calculated that the total debt service for all of their loans would soak up $1 million of their income. Naturally, they did not plan to serve an inner city neighborhood or the rural poor.

The Department of Education argues that, for the vast majority of college graduates who borrow, debt is a manageable burden, well below the threshold of 10% of gross income that mortgage lenders consider excessive for non-housing debt. But the percentage of graduates with debt burdens exceeding this level is increasing, up from 6.5% in 1986 to 8.3% in 1993.

Finally, we have created a situation in which Washington is encouraging the inexorable rise in college costs that led to the federal loan programs in the first place. Under the direct loan program, the very same institutions that set their prices are then handed federal funds to enable their customers to pay these prices. Where is the incentive for such an institution to push for cost containment?

It is appropriate and necessary to include borrowing as an element in student assistance policy. But the cumulative negative effects of loan creep demand attention.

Federal policies should encourage savings for college by means such as tax credits for education-related savings. Despite its obvious appeal, work-study seems to be slipping off the radar screen. It should be revived with quality controls to eliminate make-work jobs and with an eye toward leveraging federal funds with greater contributions from colleges and universities.

And the colleges and universities, which are the direct beneficiaries of these loans, must do their part to reduce the cost of a college degree. They must go through the same sort of “restructuring” that has affected every other large institution in the industrialized world. This means streamlining their management structures, working with sister institutions to eliminate overlapping programs and experimenting with new technologies as a means of delivering instruction. They also must address sensitive issues such as faculty productivity and devise new reward systems that strike a better balance between teaching and research.

Throughout the 1980s, college administrators frequently asked themselves when students and families would begin to vote with their feet against tuition increases that far surpassed inflation. That day of reckoning has yet to come, largely because federal loan policies have cushioned the effects of such increases.

As a result, students are now reaching the limits not only of their ability to pay for college but also of their capacity to take on additional loans. Congress, the Clinton administration and American higher education must start to work together to call a halt to these trends.