The Reagan administration's approach to higher education -- cut, squeeze and trim -- has been strikingly consistent. Using Gramm-Rudman as the proximate cause, the president now proposes truly Draconian cuts; his 1987 budget would reduce student financial aid by more than $2 billion and eliminate nearly 1 million awards.
With the notable exception of 1981, however, Congress has been unwilling to tamper with these popular programs. There is little evidence that they will do so now, particularly with Gramm-Rudman in legal limbo.
But make no mistake: federal student aid is in trouble. It is complex, costly and confusing, and if it is not cut this year, it will be an increasingly appealing target in years to come.
Student aid should not be on the fiscal chopping block year after year. Putting it there makes it hard for students, and their families, to make plans for higher education. Moreover, the realities of the modern, knowledge-based economy require steady, even increasing investment in higher education. How might we increase investment in higher education while trying to control domestic spending?
The seeds for such a plan are buried in the administration's budget, in a program so modest and so specialized that it may easily escape notice. Ironically, it is the federal government's oldest student aid program, the National Direct Student Loans, that is to be changed.
This program has been most notable for its age (almost 30 years old) and its staying power -- every president since Lyndon Johnson has proposed to end it, arguing that other grant and loan programs were more efficient. The Reagan administration has tried to kill it every year since taking office. But this year the administration not only wants to save it, but to enlarge and transform it as well.
The administration's plan contains three closely related elements. First, students woud be permitted to borrow substantially more than they can now: the current ceiling of $12,000 would be raised to $40,000. Second, the repayment period would be lengthened. And third, the amount to be paid each year would be based on the borrower's income after leaving school.
There is a catch. Interest rates would rise from 5 percent to the T-bill rate plus 3 percent. But there is also a remarkable sweetener -- the administration promises to put substantially more money in the program in the future.
The idea has several desirable features. Raising loan limits ensures students will have enough money for their education. Basing repayment on income means that educational debts will not overwhelm borrowers. Extending the repayment period will let borrowers repay their debts at a manageable pace.
These are known as "income contingent loans." While the idea is radical, it is hardly new. Conservative economist Milton Friedman advocated such a policy in the 1950s as a way to help disadvantaged youngsters finance their education. As he noted then, the poor have difficulty securing education loans. Because of the 13th Amendment, "human capital" loans cannot be collateralized the way physical capital loans can. A bank can repossess your car or house; it can't repossess you.
In the 1970s the idea was embraced by the liberal Carnegie Commission on Higher Education (headed by Clark Kerr, the president of the University of California who had been summarily fired by Gov. Ronald Reagan).
The simple repayment mechanism in the plan is appealing: a table matches loan amounts with adjusted gross income, fixing the percentage of income devoted to repayment. The maximum repayment -- for those with the largest loans -- would be 15 percent of adjusted income. Loan repayments would be recalculated each year to recognize increases, or decreases, in income.
The most important aspect of income contingent loans is that they fundamentally alter the way we treat higher education. Education is an investment, one that pays dividends over a lifetime. But we expect individuals to pay for it as current consumption or, under existing student loan programs, during the first few years after leaving college. Individuals should have the opportunity to repay the investment in themselves over an extended period of time the same way we pay for houses and factories.
The Reagan plan is not perfect. Eliminating federal subsidies by raising interest sharply will be controversial. But it is at least a fair proposition, and it should not be a stumbling block to congressional consideration.
The bigger problem is the higher-education community's distrust of the administration's motives. It is no secret that neither has much confidence in the other. If the president likes it, congressional Democrats and education interest groups are likely to conclude it can't be a good idea.
Let us hope they have the wit to separate the message from the messenger; it would be a pity to see a real reform, which merits careful attention, die for the wrong reasons.