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As the Clinton administration and Congress lock horns over how best to run the nation's student loan programs, Utah higher education officials hope Congress stands its ground.

That's because they believe the administration is trying to "stampede" schools into joining its direct student loan program, leaving some good existing programs - including Utah's - trampled underfoot."In the long term, a decentralized, competitive program such as ours provides a better quality of service, is more efficient and is administered closer to home," according to Gail Norris, associate commissioner for student aid and executive director of the Utah Student Loans Program.

At issue is the 1993 Federal Direct Student Loan Program, a centralized system that would eventually supplant state and local nonprofit guarantee agencies operating in partnership with private lenders.

Bills pending before Congress would reduce or eliminate the direct loan program. The administration has responded with a public relations blitz that characterizes the legislation as a disaster for needy college students and a welfare program for banks.

Leo Kornfeldt, a Department of Education policy adviser, said in a recent telephone interview with Deseret News editors that the direct loan program has been embraced by 1,400 schools throughout the nation.

"They all think it's the greatest," he said, citing the program's uniformity, simplicity, flexible repayment options and quick approval of loans. "It eliminates the middleman."

But congressional critics see it as another costly federal boondoggle that tosses out the good agencies with the bad, discourages competition and eliminates local control. And they say the Clinton administration is resorting to scare tactics to save a pet program whose performance hasn't measured up to expectations.

Norris tends to agree with the critics, calling some of the administration's main arguments "propaganda." The congressional proposals don't cut student loans or make them less available, he said. The only significant reduction in benefits is the elimination of the six-month grace period (interest subsidy) when loans come due, he said.

According to Norris, the political struggle has more to do with who performs the loan service rather than the service itself. For Utah students, that means having loans served by the existing state agency or some monolithic federal agency.

Both sides agree that it's not a question of private enterprise versus government, since the loans are financed by private capital secured by federal guarantees under either program.

"But if the federal government gets the monopoly, who's to say it won't become another Veterans Administration, IRS or Social Security Administration?" Norris said. "At least when you call our office, you can usually reach someone. One reason we got into the decentralized system was the failure of the previous federal program."

Administration claims of 40 percent participation in the direct loan program are overstated, Norris said. With as many as 100 schools withdrawing after the second year, the volume this year is closer to 30 percent, he said.

Utah's major universities and colleges have stuck with the state student loan programs, which earlier this year won a renewed vote of confidence from the Board of Regents.

While trying not to get drawn into the politics of the debate, Norris said Utah has a lot at stake in its outcome. Leading the list of reasons is the quality of service and cost savings for borrowers, he said.

"A Utah loan costs borrowers less than those of other guarantee agencies. What profit there is stays here for reserves and we pass the savings along to students," Norris said.

With reserves in excess of $15 million, the state agency can pay the loan insurance premium and offer a lower loan origination fee, saving students as much as $100 on a $10,000 loan. Also, Utah offers a two-percent interest rate reduction to students who pay their first 48 monthly installments on time.

Norris isn't impressed by the federal direct loan program's income-dependent repayment provision, which he says could lull some borrowers into long-term debt and deceive the public into thinking repayments have been deferred rather than defaulted.

Under Utah's program, students are counseled to borrow the least amount necessary for the shortest term possible. "We try to ensure the amount borrowed bears some relationship to the students' earning potential," Norris said. "The slower we grow, the better we like it."



Student loans

Utah - Year ending June 30, 1995

Number Amount

Of Loans In Millions

University of Utah 11,315 $51.2

Brigham Young University 12,219 $46.2

Utah State University 5,840 $19.8

Weber State University 3,615 $10.2

Westminster College 1,682 $7.0

University of Phoenix 1,480 $6.5

Utah Valley State College 2,778 $5.9

Southern Utah University 1,869 $5.7

Salt Lake Community College 2,047 $4.2

Stevens Henager College 1,160 $3.5

School of Massage Therapy 994 $2.0

Certified Careers Institute 753 $1.8

Phillips College 837 $1.8

Dixie College 699 $1.6

Bryman School 668 $1.5

Snow College 534 $1.2

ITT Technical Institute 401 $1.0

College of Eastern Utah 416 $.9

LDS Business College 251 $.5

Other 988 $2.2

Total 50,538 $175

Source: Utah Higher Education Assistance Authority