Consolidate debt government grant

In introducing his fiscal year 2006 budget last month, President George W. Bush announced the elimination of a popular federal student loan--the Perkins loan--and the proposal has received negative reviews from THE administrators, education organizations and tending industry advocates. The proposed budget will not only stash capital contributions to IHEs, but also withdraw any federal monies contributed to them starting from the very installment of the program in 1958.

But, this leaves IHEs with a tough decision to make: either continue distributing the institution's funds as loans, but face administrative costs that the federal government previously handled, or completely avoid disbursing the money as loans altogether.

"It basically means the dissolution of the Perkins program," says Dominic Yoia, senior director of financial aid at Quinnipiac University (Conn.).

And the real losers will be students, Yoia says. Of Quinnipiac's 5,200 students, approximately 10 percent receive Perkins loans, and the loan has always been considered a "very important part of the financial aid package."

Lenders face a dilemma as well since they would be loaning funds at much higher interest rates, but at a greater risk for defaults, according to the Consumer Bankers Association. The result, according to CBA, will be more loans for "higher quality borrowers," leaving needy students with less-than-stellar credit histories in the dust.

The Bush proposal comes at a time when Congress just last year approved a spending bill that did not adequately accommodate students' needs. With 37 percent more students receiving the Pell Grant than in the last decade, the program has a $3.6 billion shortfall. And this shortfall is the reason for eliminating the Perkins loan, according to the federal government, and transferring the balance to the Pell Grant.

Students will also be unable to consolidate loans since Bush is proposing cutting the federal consolidation programs. These programs offer students repayment options with tow interest rates that stay put after consolidation for up to 30 years after the grace period.

But Harrison Wadsworth, executive director of the Coalition of Higher Education Assistance Organizations (www.coheao.org), which launched a major grassroots campaign asking Congress to reject the proposal said "Half the people who apply (for private loans) are turned down."

Students "would just not go to school" he said, or not go to the school of their choice. Wadsworth predicted students would pay tuition with credit cards, "and wind up in a much worse debt problem."