Loans for the Wealthy

President Reagan got a lot of what he wanted on student loans: hundreds of thousands of students from middle-income families will become ineligible for various forms of federal tuition support in the next academic year. But after all the White House rhetoric about concentrating government aid on poor students and all the Congressional squabbling over income ceilings and "needs" tests, almost everyone attending Harvard--including many from well-to-do families--will continue to receive benefits available in the past.

It remains unclear how many of the three million students nationwide who use the loans, will be affected by new eligibility rules, which take effect October 1, but some education lobbyists have predicted as many as a third could lose interest subsidies in fiscal year 1983.

Since 1978, Congress has given students full loan benefits without restrictions on eligibility, and the cost of the program has soared from $480 million to an estimated $2.8 billion. With a maximum of $2500 per person, Harvard students received approximately $15 million in fiscal year 1981.

The most important changes in the Guaranteed Student Loan (GSL) program include:

Beginning next month, students from families earning more than $30,000 will have to meet a Department of Education "needs" test.

Students who applied for loans after August 22 will have to pay a 5-per-cent "origination" fee designed to cut federal expenditures for the program. In fact, the fee will reduce a $2500 loan to $2350, although the recipient will still pay interest on the entire $2500.

Interest borrowers pay in a related, but far smaller, program, Auxiliary Loans to Assist Students, will increase from 9 to 14 per cent on October 1. This program, which provides maximum yearly loans of $3000, benefits parents, graduate students and independent students without regard to income.

Congress has also approved cutbacks in the so-called Pell Grant program for low-income students. The approximately 1000 Harvard students receiving these outright subsidies will receive a maximum of $1670 next year, down from $1750. Other students who qualify for special National Direct Student Loans will have to pay 5-per-cent rather than 4-per-cent interest.

Richard W. Black, coordinator for financial aid, says the University is already considering ways it can ease some of the cutbacks with expanded benefits of its own. He adds, though, that students receiving aid from the GSL program "should really be all right as things stand now." Any student whose family can show a "demonstrated need"--as calculated by a complicated Department of Education formula (or by the college's formula if the student receives aid directly from the school)--will qualify.

Once family resources have been analyzed, students will be eligible to borrow the amount they need to cover college costs after other forms of financial aid and their expected family contributions are taken into account. Since the amount students can borrow is tied to tuition levels, students enrolled in more expensive private schools will probably be unaffected by new regulations, even if their family's income is far more than $30,000. Students most severely affected will be those attending inexpensive public schools and whose families earn between $30,000 and $45,000 a year.

For example, a family with one child in a typical public university would lost eligibility for the minimum $1000 loan at an income level of about $34,000. But a family with a child in a school like Harvard, where costs are now estimated at more than $11,000 would be eligible for a minimum loan unless income exceeds $46,500. The disparity becomes even greater for families with two children attending college. If the children are both enrolled in Ivy League schools, the income ceiling would be $92,000 for two $2500 loans. Families with incomes of more than $100,000 would still qualify for loans of less than the maximum.

Under the GSL program, the government guarantees the loans against default and pays banks the difference between the student interest rate, now set at 9 per cent, and market interest rates, which stand at 15.5 per cent. The government also pays the interest while students are in school.

With pressure on Secretary of Education T.H. Bell to make further cuts in the department's budget, most experts expect the White House to renew its initial support for such changes as requiring students to pay interest while still enrolled, imposing a stricter needs test and eliminating entirely the Auxiliary Loan program.