clock menu more-arrow no yes

Filed under:


Despite strong opposition from banks, a plan currently under consideration in Congress for direct student loans deserves at least an experimental chance. The idea is simple - to help millions of middle-income students get college loans directly from a college or university - bypassing banks and other lenders.

A student could borrow up to $5,000 a year, with a total limit of $30,000. The interest rate would equal the 52-week rate on Treasury bills plus two percentage points. The student's pay-back schedule would depend on income, and the Internal Revenue Service would collect the payments.Predictably, banks, who stand to lose money despite the rising default rates on college loans, are fighting the plan. Some college administrators who are uneasy with governmental intrusion, even with minimum IRS involvement, are also proceeding with caution.

But proponents of the bill say direct student loans will reduce defaults, which have cost taxpayers $11.5 billion since 1987.

The fact is that something needs to be done about the current frustrating and bureaucratic student loan system. Middle-income Americans are being priced right out of higher education at a time when demands are increasing for a better-educated work force.

Even when adjusted for inflation, college tuition grew at five times the rate of the median family income from 1980 to 1987, a national survey shows. By 1989, the average tuition for a year in a public college was $5,013, while average tuition for a private institution was $16,356.

Although inflation was 3 percent to 4 percent last year, tuition and fees were up 12 percent at public four-year institutions. At this rate, numerous highly qualified students without necessary funding will simply be denied a college education.

This is a good enough reason to support the direct student loan program - and besides, college loan officers say that students who participate will accrue significant savings in costly guarantee and origination fees - as well as time and energy in the application process.