Key tool for making loans to needy US students is under fire in Congress

Mr. Dawkins, a recently retired brigadier general in the US Army, is now managing director of Lehman Brothers Kuhn Loeb, a Wall Street investment firm. If a tax bill recently approved by the House Ways and Means Committee becomes law, some of the neediest youngsters in our poorest states may be denied a chance to go to college.

The bill - HR 4170 - effectively eliminates tax-exempt financing for student loans and undermines a vital element of support for the Guaranteed Student Loan program.

The GSL program, set up in 1965, is designed to provide young people of limited financial means an opportunity to attend college. Through the program, the federal government reinsures state-guaranteed loans and subsidizes the interest on loans for students from low- and some middle-income families. This support encourages private lenders to lend funds to students and their parents, thereby assisting students to pursue post-secondary education at all levels - from vocational programs to graduate school.

Many states have established student loan authorities which, through the use of tax-exempt revenue bonds, have come to play a major role in the funding of the GSL program. These agencies have established their own loan funds to serve as ''lenders of last resort'' - and sometimes lenders of only resort - for students who cannot obtain loans from private lenders. They have also helped create state secondary markets for GSLs in which they buy loans from private lenders. These secondary markets have encouraged many who do not want to assume burdensome, costly collection activities to participate in the program.

Enter HR 4170. If HR 4170 is passed in its present form, tax-exempt financing for student loans would be effectively terminated.

First, the legislation places a ceiling of $150 per capita for ''private purpose'' bonds in each state, and includes student loan revenue bonds in its definition of ''private purpose.'' With tax-exempt student loan financing included in this new, restrictive ceiling, student loans would be squeezed out in favor of more politically potent alternatives.

Second, HR 4170 subjects student loan bonds to limitations that would drive ''arbitrage'' earnings - the excess of investment yield over interest expense - below the level necessary to cover the costs of administering a student loan program.

HR 4170, therefore, would have a largely unintended, but potentially disastrous, consequence: It would jeopardize educational opportunity for those who have the greatest need in our most economically depressed states. Typically, those students whose loan applications are not approved by private lenders, and who need a lender of last resort, are poor, members of minority groups, or both. If the capital that state student loan revenue bonds produce is eliminated, these students will not be able to obtain loans - and go to college.

Last year nearly 3 million students were able to pursue their college work because of the Guaranteed Student Loan Program. In its present form, HR 4170 could deny 200,000 to 300,000 of the neediest young people the opportunity to continue their education. Minnesota Gov. Rudy Perpich has warned: ''The cost of higher education is skyrocketing in Minnesota. We must have access to low-cost student loans if all able Minnesota students are to have access to higher education.''

Policymaking always involves tough choices. As Congress works to control the burgeoning federal deficit, it is imperative that these choices be faced. In some instances, the basic intent behind tax-exempt financing has been subverted, and Congress is well advised to review these mechanisms to ensure they serve their proper, and intended, purposes. But this review must also include a careful calculation of the full consequences of any changes.

This year, numerous commissions have reconfirmed the critical importance of education for America's future. A powerful national consensus has emerged to improve the quality of education and to make real the American promise that every young person - not just the affluent and fortunate - should have the opportunity to go as far as his talent and ambition will take him. Congress needs to reconsider HR 4170 carefully - before the nation takes a step backward, rather than move forward, in carrying out that consensus.

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