Slashing Student Loans

If President Clinton has his way, 1995 may turn out to be a very good year for students seeking financial aid. But if Republican Congressional leaders have their way, students may find themselves paying more than they had expected for college and graduate school.

As part of his Middle Class Bill of Rights, President Clinton wants to increase student financial assistance.

Republicans, as part of their Contract with America, want a balanced budget, which may mean significant cuts in student assistance programs.

And as the budget drama plays out in Washington, Harvard students will be left in limbo with the University as their only advocate.

"We're talking about money that could be gone in September," says Clare M. Cotton, president of the Association of Independent Colleges and Universities in Massachusetts.

Although President Clinton and some Senate Democrats have proposed a tax deduction of up to $10,000 for college tuition payments, University officials are worried about House Budget Committee proposals to cut financial assistance.

Rep. John R. Kasich (R-Ohio), chair of the committee, says nearly all federal programs, including student financial aid, will likely face cuts in funding.

"Everything, every program, every department, every agency of the federal government is undergoing scrutiny right now," says Bruce Cuthbertson, his spokesperson.

In particular, Kasich has proposed eliminating campus-based financial aid programs such as Work-Study and Perkins Loans, as well as ending the in-school interest subsidy on Stafford Loans.

Currently, students receiving Stafford Loans are exempt from paying interest until six months after they finish school.

Massachusetts schools receive over $200 million annually from all programs being considered, Cotton says.

"It means the end of Work-Study. To lose Work-Study would be a catastrophe," Cotton says. "There is no alternative source for this money."

Cost to Students

Elizabeth M. Hicks, Harvard's coordinator of financial aid, says the loss of the in-school interest subsidy on student loans would increase the cost of a student's Stafford Loan by nearly 20 percent.

Students borrowing $17,125, the maximum amount allowed under the Stafford program, would either see their monthly payments raised by $41 or their loan repayment time extended by 3.4 years, Hicks says.

"By eliminating it, students would need to borrow more in order to cover the loss of the interest subsidy," she says. "The longer you stay in school, the more costly it becomes."

But Kasich wants to end the in-school interest subsidy because it is unfair to other borrowers, Cuthbertson says.

"When you go to get any other type of loan, you do not get that type of subsidy from the federal government," he says.

Cutting financial aid is "sort of a pet project of [Kasich]," says Derek Lick, spokesperson for former Budget Committee chair and current ranking minority member Martin Olav Sabo (D-Minn).

The Harvard Lobby

Because such drastic changes in student aid are being discussed in today's era of divided government, Harvard is joining other institutions of higher education to lobby intensely to preserve student assistance programs.

"We have been working quite hard to join with other institutions and/or associations to try to persuade the Congress not to proceed [in cutting financial aid programs]," says Nan F. Nixon, Harvard's director of governmental relations. "Thirty higher education associations have joined together to create an alliance to try to prevent the cuts in student aid."

Nixon says her lobbying efforts do not involve writing checks but represent, instead, an exchange of information.

"You try to present what the arguments are, both in writing and verbally, to people on both sides of the aisle," Nixon says.

Harvard's Vice President of government andCommunity Affairs, James H. Rowe III '73, saysCongress should not cut student financialassistance haphazardly or without thought.

"Campus-based aid comes in a variety of waysand is tailored to the individual student's need,"Rowe says. "That is a difficult area to legislatein."

And Hicks adds that federal student loansubsidies should not be curtailed because theyrepresent investments that will lead to long-termeconomic growth.

"The money that is spent on these programswould be well spent," she says. "It's aninvestment in human capital, and that's better forthe economy."

But the lobbying effort of Massachusettsinstitutions of higher education has become muchmore difficult with the ascendancy of a Congressdominated by Republicans from the South andMidwest, Cotton says.

"Massachusetts is not the player that it was inthe past when we had committee chairmen," he says."All the news we have gotten is thatRepresentative Kasich is determined to end theinterest subsidy."

Nixon says she has spoken to both Republicansand Democrats about the issue, and individuals onboth sides appear to be concerned.

"It's an issue that a lot of people careabout," Nixon says. "In the offices, there isoften a sympathetic reaction."

Both Cotton and Nixon place U.S. Sen. Edward M.Kennedy '54-'56 (D-Mass.) at the top of the listof legislators with whom they have spokenregarding the threat to student aid.

Kennedy, the liberal stalwart and former chairof the Senate Labor and Human Resources Committee,has traditionally been a strong supporter offunding for higher education.

In a speech last month at the National PressClub, Kennedy said he opposes any cuts in studentfinancial assistance.

"Let's hold the line against even one cent ofRepublican cuts in college aid," Kennedy said."How dare anyone offer a Contract with Americathat professes allegiance to the middle class butthat would slam college doors in the face of theirchildren."

Kennedy's Republican successor as chair atLabor and Human Resources, Sen. Nancy L. Kassebaum(R-Kan.) supports financial assistance for highereducation but is also aware of the immensepressure to balance the budget, says Mike Horak,her spokesperson.

"The reality of the matter is that as theSenate prepares to vote on the Balanced BudgetAmendment, everything that is federally fundedwill come under very close scrutiny," Horak says."I think that extends to student loans."

But Kassebaum's committee is not the firstarena for the discussion of student aid measures.That honor rests with Kasich's House BudgetCommittee.

Massachusetts currently has only onerepresentative on the committee, U.S. Rep. John W.Olver (D-Amherst).

Olver opposes any cuts in financial aidfunding, according to Leslie Lillard, hisspokesperson.

"What John Olver is going to be trying to do isblock efforts to decrease the larger pool[available to education]--that's basically hismission," she says. "John Olver believes that oneof the most important things that the federalgovernment should do is ensure that young peoplewho want to go to college can."

Not all of Olver's colleagues on the BudgetCommittee share his view, however.

Republican members of the committee, whodrafted a proposal to balance the budget andattached it to the Contract with America in adocument which many perceive to be part of theContract, proposed the cuts in the in-schoolinterest subsidy and campus-based programs in thedocument.

But Tony Blankley, spokesperson for Speaker ofthe House and Contract guru Newt Gingrich (R-Ga.)insists the Budget Committee document is not partof the Contract with America.

"It was not part of the Contract but was adescription of one possible way to get to thebudget cuts," he says. "Other than SocialSecurity, nothing is off the table, includingdefense."

Budget cuts for 1995, known in Washington asrecisions, are likely to be limited only toPerkins Loans, according to a staff member on theAppropriations Committee.

The federal Work-Study program is "less likelyto be included in a recision bill," the staffmember says.

Rowe says he is worried that pressures to cutthe deficit will likely lead to cuts in educationfunding.

"I am optimistic about the high level ofinterest and concern for financial aid," Rowesays. "But I am concerned about the complexity ofsome of the programs against the context offunding the deficit."

And Cotton says he is not optimistic thatCongress will preserve all financial aid programs.

"Many of the older members of Congress are moreopen to this position than the freshmen," he says."But there is a sense in which there is a lot ofpressure from the freshmen to do things."

But regardless of what happens to federalfunding, Harvard will maintain its need-blindadmissions process, Rowe says.

"The funds would come from where we get ourother funding," Rowe says. "I don't think that'sgoing to change in the near term."

Hicks says Harvard "will always find a way" toprovide funds to students with need.

"What's good about Harvard is that we do haveresources that we can put to use for creative andinnovative plans," Hicks says. "We have a verydeep commitment to need-blind.

Loss of a Subsidy

The Harvard University office of Financial Aidhas calculated the following costs toundergraduates if funding for financial aid wererepealed. Monthly payment figures assume a loanamortized over ten years. Percentage increase isthe percentage change in total payments over 10years that would be needed to cover the additionalinterest accrued while in school.

Loans borrowed  With in-schoolsubsidy  Without in-school subsidyYear in school  Annual loan limit  Totalloan balance  Standard monthlypayment  Total loan balance  Standardmonthly payment  Percentage increase1st  $2625  $2625  $50  $2876  $50  0.0%2nd  3500  6125  75  6928  85  13.1%3rd  5500  11625  143  13459  165  15.8%4th  5500  17125  210  20445  251  19.4%Total  $17125  $17125  $210  $20445  $251  19.4%

Source: Harvard University Financial AidCrimson File Photo

Harvard's Vice President of government andCommunity Affairs, James H. Rowe III '73, saysCongress should not cut student financialassistance haphazardly or without thought.

"Campus-based aid comes in a variety of waysand is tailored to the individual student's need,"Rowe says. "That is a difficult area to legislatein."

And Hicks adds that federal student loansubsidies should not be curtailed because theyrepresent investments that will lead to long-termeconomic growth.

"The money that is spent on these programswould be well spent," she says. "It's aninvestment in human capital, and that's better forthe economy."

But the lobbying effort of Massachusettsinstitutions of higher education has become muchmore difficult with the ascendancy of a Congressdominated by Republicans from the South andMidwest, Cotton says.

"Massachusetts is not the player that it was inthe past when we had committee chairmen," he says."All the news we have gotten is thatRepresentative Kasich is determined to end theinterest subsidy."

Nixon says she has spoken to both Republicansand Democrats about the issue, and individuals onboth sides appear to be concerned.

"It's an issue that a lot of people careabout," Nixon says. "In the offices, there isoften a sympathetic reaction."

Both Cotton and Nixon place U.S. Sen. Edward M.Kennedy '54-'56 (D-Mass.) at the top of the listof legislators with whom they have spokenregarding the threat to student aid.

Kennedy, the liberal stalwart and former chairof the Senate Labor and Human Resources Committee,has traditionally been a strong supporter offunding for higher education.

In a speech last month at the National PressClub, Kennedy said he opposes any cuts in studentfinancial assistance.

"Let's hold the line against even one cent ofRepublican cuts in college aid," Kennedy said."How dare anyone offer a Contract with Americathat professes allegiance to the middle class butthat would slam college doors in the face of theirchildren."

Kennedy's Republican successor as chair atLabor and Human Resources, Sen. Nancy L. Kassebaum(R-Kan.) supports financial assistance for highereducation but is also aware of the immensepressure to balance the budget, says Mike Horak,her spokesperson.

"The reality of the matter is that as theSenate prepares to vote on the Balanced BudgetAmendment, everything that is federally fundedwill come under very close scrutiny," Horak says."I think that extends to student loans."

But Kassebaum's committee is not the firstarena for the discussion of student aid measures.That honor rests with Kasich's House BudgetCommittee.

Massachusetts currently has only onerepresentative on the committee, U.S. Rep. John W.Olver (D-Amherst).

Olver opposes any cuts in financial aidfunding, according to Leslie Lillard, hisspokesperson.

"What John Olver is going to be trying to do isblock efforts to decrease the larger pool[available to education]--that's basically hismission," she says. "John Olver believes that oneof the most important things that the federalgovernment should do is ensure that young peoplewho want to go to college can."

Not all of Olver's colleagues on the BudgetCommittee share his view, however.

Republican members of the committee, whodrafted a proposal to balance the budget andattached it to the Contract with America in adocument which many perceive to be part of theContract, proposed the cuts in the in-schoolinterest subsidy and campus-based programs in thedocument.

But Tony Blankley, spokesperson for Speaker ofthe House and Contract guru Newt Gingrich (R-Ga.)insists the Budget Committee document is not partof the Contract with America.

"It was not part of the Contract but was adescription of one possible way to get to thebudget cuts," he says. "Other than SocialSecurity, nothing is off the table, includingdefense."

Budget cuts for 1995, known in Washington asrecisions, are likely to be limited only toPerkins Loans, according to a staff member on theAppropriations Committee.

The federal Work-Study program is "less likelyto be included in a recision bill," the staffmember says.

Rowe says he is worried that pressures to cutthe deficit will likely lead to cuts in educationfunding.

"I am optimistic about the high level ofinterest and concern for financial aid," Rowesays. "But I am concerned about the complexity ofsome of the programs against the context offunding the deficit."

And Cotton says he is not optimistic thatCongress will preserve all financial aid programs.

"Many of the older members of Congress are moreopen to this position than the freshmen," he says."But there is a sense in which there is a lot ofpressure from the freshmen to do things."

But regardless of what happens to federalfunding, Harvard will maintain its need-blindadmissions process, Rowe says.

"The funds would come from where we get ourother funding," Rowe says. "I don't think that'sgoing to change in the near term."

Hicks says Harvard "will always find a way" toprovide funds to students with need.

"What's good about Harvard is that we do haveresources that we can put to use for creative andinnovative plans," Hicks says. "We have a verydeep commitment to need-blind.

Loss of a Subsidy

The Harvard University office of Financial Aidhas calculated the following costs toundergraduates if funding for financial aid wererepealed. Monthly payment figures assume a loanamortized over ten years. Percentage increase isthe percentage change in total payments over 10years that would be needed to cover the additionalinterest accrued while in school.

Loans borrowed  With in-schoolsubsidy  Without in-school subsidyYear in school  Annual loan limit  Totalloan balance  Standard monthlypayment  Total loan balance  Standardmonthly payment  Percentage increase1st  $2625  $2625  $50  $2876  $50  0.0%2nd  3500  6125  75  6928  85  13.1%3rd  5500  11625  143  13459  165  15.8%4th  5500  17125  210  20445  251  19.4%Total  $17125  $17125  $210  $20445  $251  19.4%

Source: Harvard University Financial AidCrimson File Photo