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COLLEGE LOANS HAVE ADDED TO DEBT WOES

SHARE COLLEGE LOANS HAVE ADDED TO DEBT WOES

Two weeks ago when President Clinton introduced his "Middle-Class Bill of Rights," it was no surprise that college tuition relief was first on the list.

The steep cost of an education has become a problem for voters of all ages.The president's proposed $10,000 tax deduction for tuition is more generous than a Republican proposal that would increase the burden by making students newly responsible for interest accumulated while they were in school.

But - with a maximum saving of about $1,500 a year - it still isn't going to solve anything.

Clinton wants the support of young voters. He speaks with pride of the National Service Trust Act, which he signed into law last year.

There's just one problem. As pitched during the campaign, the act was to have three provisions. College students would be able to borrow money directly from the government, bypassing banks; graduates would be able to pay off loans in proportion to their incomes and those still in school could work off their debt through a program of national service.

Last year, when Clinton signed the program into law, young voters got their first chalky taste of the difference between campaign promises and political realities.

First, because such jobs are expensive to create, the service program will be available to only 100,000 students over five years - 2 percent of those expected to graduate during that time.

But more important, while the provision allowing lower monthly payments is sensible, that feature of the legislation is not retroactive. It offers no debt relief to students who have already graduated.

Why should college debt require a political solution? Because it is a political problem, created by the government.

When President Lyndon B. Johnson signed the Guaranteed Student Loan Act into law in 1965, it was never intended to become the whale-size program it is today. The short-term loans it offered had strict income requirements, and by the mid-1970s only a small number of students had taken advantage of it.

Then, in 1978, President Jimmy Carter signed the Middle Income Student Assistance Act into law. It removed the previous income restrictions so that a Kennedy kid could qualify for a guaranteed loan almost as easily as a Katzenjammer kid.

The new policy made some people nervous. Fortune magazine warned, "Anything that makes it easier to pay tuition bills will also make it easier to raise tuition charges."

Fortune was right. Before 1978, tuition increases tended to run a percentage point or so behind inflation. By the 1980s, the increases were running at twice the inflation rate.

Yet average income growth remained stagnant, putting pressure on parents. This means that the burden could be lightened only by the students themselves taking out loans.

By 1990, the average college student was graduating $10,000 in the red, and many were facing far higher bills.

During the recession that began in 1990, many graduates were unable to repay the money. In 1992, the student loan default rate was 22 percent - twice what it had been 15 years before.

This isn't just a problem for kids. In this decade, defaults on guaranteed student loans have cost the government - and the taxpayers - close to $3 billion a year.

Overall, the loan program has been a boon for banks and colleges. Colleges had a problem at the end of the 1970s. Although the baby-boom generation was very big, the "baby bust" generation - kids born from about 1964 to 1975 - is very small.

So colleges, which had expanded, have charged students more money, subsidized by federal loans. As for banks, student loans are more profitable than home mortgages and car loans. Since the government is a co-signer, it must make good on bad loans immediately.

A 1992 congressional study found that many banks were declaring students in default prematurely, so eager were they to get their hands on the federal loot.

Never before have so many students come into the adult world already in the red. Young people are learning to save backward - not for the future but for a daunting expenditure made in the past.

In last month's elections, only 20 percent of voters under 30 went to the polls. In 1996, Clinton - or another candidate - could find a potent constituency in the millions of recent graduates, and their parents, who know government played a role in creating this problem.

They are still waiting for help in finding a solution.