No Credit

President Johnson's Guaranteed Insured Loan Program has run into trouble just where its critics predicted it would. Since the plan forces students to negotiate loans through private institutions in their home states, Negroes in the South and poor credit risks everywhere are having a hard time borrowing money.

The problem with GILP is not so much slip-shod administration, though there is some, but rather that the whole plan is tailored to fit political demands and not students' needs.

The decision to replace the successful National Defense Education Act loans with GILP was made at the urging of Bureau of the Budget officials, who sought to erase the $190 million capital expenditure needed each year for NDEA. The specific form of the new loan system was dictated chiefly by a small private corporation in what has to be one of the smoothest power-grabs in years.

Despite a tiny staff, United Student Aid Funds (USAF) has been the largest private loan guaranteeing firm in the nation since its formation in 1961. When the government first hinted several years ago that it might shift the loan program to private firms, USAF lobbied hard and successfully to have the new program run through the states -- thus giving itself a chance to offer its services to any state that did not have a going loan guaranteeing service. In 30 states, it has managed to become the major administrator of GILP, using federal funds as collateral behind student loans.

The ultimate flourish to all this legislative hocus pocus is a provision in the program prohibiting the federal government from setting up its own insured program unless it can prove the states (and USAF) are not doing the job -- and making such a determination could take years.

The sad result of this splintering of responsibility is that neither the states nor USAF can put enough pressure on bankers to lend money to the neediest and the Negroes. For the time being most of the students in these categories can still get money from NDEA, but what will happen when that program is completely "phased out"?

To make GILP viable the federal government will have to take back some of the power it rashly signed away. It will have to establish a federal agency to lend money to those denied it because of discrimination, and it will have to institute a need clause in the loan application so that the poorest credit risks will be given priority. In the meantime President Johnson should press the new Congress to pass a bill making $30 million available to the colleges for present loan needs, easing the financial pinch until permanent changes can be made.