THE BUDGET deficits of recent years have done their share of good among federal programs as well as harm. The good has been to force some genuine reforms; a prime example is in college student aid.
The student aid programs now consume more than $10 billion a year. More than a fifth of that is used not to aid more students but to pay off defaulted loans. The defaults have occurred not so much in traditional schools as disproportionately in the trade school industry that has grown up around, and lives off, the federal programs. The industry now absorbs a fourth of aid to higher education, up from a tenth 10 years ago, and accounts for an even larger share of the default costs.
In 1987 the Reagan administration proposed to reduce defaults by denying loans to students at institutions with defaults rates above a certain level. Congress rejected the proposal as excessive. The administration, for ideological as well as fiscal reasons, had been trying to cut back student aid generally, saying it had become an uncontrolled semi-entitlement. Congress was resisting, and the default issue got caught up in the broader fight.
Now, however, as part of the latest deficit reduction plan, a proposal not unlike the Reagan administration's of three years ago will be put into place. Ultimately no loans will be made to students at schools with default rates over 30 percent. (Reagan education Secretary William Bennett had proposed 20 percent.) Some defenders argue that aid to higher education ought not have been included in the deficit reduction plan, on grounds the government spends no more important domestic dollars. Others, the self-interested trade schools least convincingly among them, say the 30 percent rule will reduce the great equalizing effect of these programs, the access of lower-income students to higher education. Both things may be true, but it would be hard to argue in even an easy budget era that the government should keep putting money into transactions as risky as the ones this legislation would forbid.
The strong case for increased aid to higher education can't be made so long as so large a share of the aid is wasted, and an end to the waste will greatly increase the aid that even the current budget can support. This would have been good legislation even without the deficit on the strength of which it was passed.