Gov. Harry Hughes has proposed legislation to create a special education fund to enable Maryland's private universities and colleges to finance loans for students whose federal loans are being cut by the Reagan administration.
The bill would establish the Maryland Higher Education Supplemental Loan Authority, a body empowered to issue tax-exempt revenue bonds for student loans, at no cost to the state.
Sponsors of the measure, Del. Lucille Maurer (D-Montgomery) and Del. Nancy Kopp (D-Montgomery), admit that the loan system would benefit mostly middle and lower-middle class students whose families have the ability to borrow money, and the state's 1,800 graduate students, who are faced for the first time with a complete cut-off of federal guaranteed student loans.
"There are a lot of students who, without this new loan program, would not be able to get a college education or continue their education," Maurer said, adding that private college are more vulnerable to the decrease in government-backed loans because they are so financially dependent on student tuition.
"The whole structure of higher education can be threatened. The impact of cutting out grants goes far beyond the students themselves. It is a horror story for higher education."
Although sponsors say the fund could be used eventually by public universities that can put up collateral for the loans--either through their own foundations that can independently bring in funds or with money listed in the state budget--the program at the outset would not affect these schools, which traditionally have had higher percentages of minority and low-income students.
Institutions likely to reap the biggest benefits are those such as Johns Hopkins University, where some 2,550 students receive guaranteed student loans to help offset the annual cost of $8,600, and Loyola College of Baltimore, which has a large percentage of graduate students.
"We would lose most of our graduate students (without access to money for loans)," said J. Paul Melanson, Loyola's vice president for administration and finance. "And it would change the mix of students. There would be fewer students, and more from higher-income families."
At Goucher College in Towson--annual cost $8,300--roughly 76 percent of the student body receives federal student loans. Goucher, an unhappy example of a school threatened by the changing economy and the Reagan cuts, has an endowment of only $20 million and has already had to abolish its classics department in response to its financial problems.
Under the loan program, which Goucher could take advantage of, private colleges would put up collateral for the loans and would retire the bonds through student repayments of the loans.
Officials from the state's private educational institutions have pushed for the loan program since last July, fearing that Reagan's higher education cuts would hit them hardest.
J. Elizabeth Garraway, executive director of the Maryland Independent Colleges and Universities Association, said that her group expects a 58 percent cut in federal loans to Maryland students in 1983.
Most worrisome to these officials are the proposed cuts in guaranteed student loans, which this year provide $23.5 million for some 8,700 students in Maryland's 13 private institutions. Garraway's group estimated that $14 million to $17 million could be lost.
Under the guaranteed student-loan program, undergraduates can receive up to $2,500 and graduate students up to $5,000 each year in loans at a 9 percent interest rate. The federal government makes up the difference between the market rate of interest and the 9 percent rate and pays that amount to the banks that lend the money directly to students.
Last year, Reagan proposed changing the program so that families with incomes higher than $30,000 had to prove a financial need for the loans. His administration argued that well-to-do families had taken advantage of the loans by borrowing money at low-rates and reinvesting it at higher rates.
The governor's proposal for a loan agency is modeled after a similar system in Illinois. Several other states are considering similar legislation. Although Maryland has used such a system to finance construction projects, a state agency has never been involved directly in financing student loans.