TWO WEEKS AGO the Carter administration acceded to the House and withdrew an attempt to drastically reduce the federal impact-aid and direct student-loan programs. In return, the House leadership promised to beat back attempts to increase appropriations for the $61.3 billion Labor-HEW bill, which it subsequently did. The second part of the compromise involved an agreement by HEW Secretary Joseph A. Califano Jr. to restudy the impact-aid and student-loan programs.
Now you could regard the restudy as nothing more than face-saving to cover an administration defeat. What the President wanted to do was not new. Both the Nixon and Ford administrations had also unsuccessfully sought to cut back these programs, and both had discovered that the programs have considerable politican appeal. But we hope the administration will take a larger view of the matter, for there is an opportunity in the restudying process to reconsider these programs in a way that might actually move the issues involved off dead center.
The Carter administration was weeking to slice impact-aid subsidies to public schools attended by children of federal and military employees so that schools would receive money only for the education of those students who actually live on government property or military bases. As we've said before, a narrowing and perhaps a phased shutdown of the program are in order, provided that other, more suitable ways are found to compensate for the unusual burdens of the federal presence.
The student-loan situation is less clear. The administration wanted to reduce and then eliminate new federal payments to the 20-year-old. National Direct Student Loan program (NDSL) and allow the Guaranteed Student Loan Program (GSLP) to exist as the only federally supported loan program. (Under the GSLP, private lending institutions make the loans, but their repayment is guaranteed by the federal government.)
The education lobbies and many educators opposed this proposal, arguing, among other things, that many students aren't able to get GSLP loans because of the lack of participating institutions in their area or because of the participating institutions' restrictive lending policies. They also asserted that most institutions were more interested in getting their rate of return - GSLP loans are given at 7 per cent interest; NDSL loans are given at 3 per cent interest - than in aiding students gain an education. Much of this criticism was substantiated by a consultant's report done last year for HEW's Office of Education. The report found that low-income students, minority students and students whose parents weren't customers of the bank had significant difficulty in securing loans. The Carter administration, on the other hand, argues that the financial needs of these students can be met by the NDSL revolving loan fund (through which educational institutions make loans from the payments they receive from former students) coupled with an improved GSLP and federal aid-to-education grant programs.
The administration has the worst of this argument, in our view, though not by much. For there are flaws in the NDSL program, such as the lack of hard data on several key aspects of the program and its high default rate. What all this means is that a fresh study of the loan effort could be extremely profitable for the federal government, private lending institutions and, above all, for the students themselves.