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Styron's Chance.

There have been promising innovations to help pay for college, but none match the GI Bill.

In Sophie's choice, William Styron's 22-year-old alter-ego is summarily laid off from his job at a New York publishing house. But despite his near-penniless state, the young man is elated at the possibilities of the future. "I ... had the freedom of the world spread out before me," he writes. Styron is not the only young man to have been gripped by excitement as he made his way in the world. But for the hundreds of thousands of graduates who leave school saddled with debt, their enthusiasms are tempered by the prospect of paying back more money than most have ever laid eyes on. Styron's blithe outlook was probably due in no small part to the fact that he attended Duke University on the GI Bill. Not only was his tuition paid for; he also received a $75 monthly allowance, which could go a long way in the 1940s.

Styron was just one of the 2.2 million veterans who attended college on the World War II scholarship. Many of them would never have set foot on a university campus without the federal grant, and their lives (not to mention American society) were turned upside down by Uncle Sam's investment. Armed with their B.A.s, these graduates entered careers in the sciences, arts, public policy, and business. They formed the bulwark of the growing American middle class. Styron is not the only illustrious graduate to have profited from government largesse: John Chancellor, former Justice Byron White, and Clint Eastwood were GI recipients, too. As Peter Drucker wrote in Post-Capitalist Society, "future historians may regard [the GI Bill] as the most important event of the 20th century."

Today, as the gap between the haves and have-nots in our society grows into a chasm, a college education is becoming more important than ever before. The GI Bill, however, was the last great investment the United States made in higher education. College aid has drifted from a grant-based program to a loan-based system. In the '70s two-thirds of all financing came in the form of grants; today, two-thirds comes in the form of loans. (If the significance of this trend is lost on you, consider the difference between being given a house and having someone loan you the money to buy one.) Meanwhile, university tuitions imploded: Between 1981 and 1995, the cost of attending even traditionally affordable public colleges shot up 234 percent, nearly three times as fast as median household income. College is increasingly beyond the reach of low-income students, and middle class families are finding their backs pushed against the wall as well.

There is, however, a silver lining in this storm cloud. While the federal government hasn't confronted the college cost crunch head on, legislation aimed at making higher education more affordable has sprung up at the national and state level. Funding for Pell Grants, which provide aid to the neediest families, inched up last year. In 1993 Georgia began dispensing scholarships to students who maintain a B average in high school. The Clinton administration revamped the student loan system, leading to improved service for kids. And the government is allowing students the option of paying back their loans as a percentage of their income, which should allow beneficiaries more flexibility in their career choices. Certainly, none of these innovations match the generous package Styron was entitled to as a former GI. But they lighten the load of newly-minted college graduates. And that gives these kids a chance to see the world the way Styron did: thrilled rather than cowed by the twists the future could take, eager to make their mark at a young age.

Nickels from Uncle Sam

Beth Macy was befuddled by the letter she received from Bowling Green State University 17 years ago. Along with an acceptance notice was a list of strange names like "Pell Grant" and dollar sums that made the high school senior's eyes bulge. She thrust the sheet of paper under the nose of her guidance counselor and asked him what it meant. "It means," he replied, "that you can go to college" Macy was stunned. Her mother was supporting the family on $8,000 a year; college seemed little more than a pipe dream. "That letter could have read: `Congratulations: You've entered the middle class,"' she says.

Macy's entree to a better life can be traced to an idea that came to former Sen. Claiborne Pell (D-R.I.) as he skied down a mountain in Switzerland. The concept of financing college educations for poor Americans had been kicking around for several years, and Pell wanted to ensure that students with the greatest need received the most aid. He jotted down his solution on a placemat in the ski lodge, and a variation of his idea was passed into law in 1972: There would be a fixed grant for everyone, but the scholarship would be subtracted from an "expected family contribution" to be established annually. That way, indigent students would receive the largest grants, but lower-middle class families could tap into government funds as well.

Pell's blueprint was reportedly inspired by the success of the GI Bill. But his eponymous program is centered around a very different premise than the World War II veteran scholarship. The GI Bill was essentially a quid pro quo: Americans were paying for the college education of former soldiers in recognition of their service. In contrast, the Pell Grant was based on the idea that government had an obligation to improve the lives of the disadvantaged. (This was back in the days when the phrase "activist social policy" didn't send politicians running for cover.) In addition, the GI Bill covered veterans' college tuition and fees, whether they were attending Yale University or Queens College. The Pell Grant has always been capped and the program never fully funded.

While Pell Grants never became a foundation for college financing in the United States, the early track record of the program was promising. The real value of the Pell Grant was at its peak in the late '70s, and with state scholarships surging, many low-income Americans were able to finance their college educations without taking on a mountain of debt. From 1981 to 1994, however, the value of the federal grant dropped 22 percent. The Clinton administration did push the maximum award up to $3,000 last year. But only the poorest families will qualify for the full stipend.

Obviously, not only the destitute need help. With some private colleges charging a cool $30,000 annually, the Bradys and Cleavers are taking a deep gulp at the prospect of underwriting a pre-med degree. These households should not despair, however--the federal government may not be funding the higher education of middle America, but merit-based scholarships are all the rage in states across the country. Georgia, for example, parcels out thousands of grants to kids of all income levels with solid academic records. It's not the GI Bill, but the Peach state's program is probably the most generous public scholarship system operating in the United States today.

A Peach of a Deal

The HOPE (Helping Outstanding Pupils Educationally) scholarship could be summarized in a 15-second campaign jingle: Any Georgia resident who has completed high school with a "B" average can attend the state's public colleges tuition-free. The stipend also covers mandatory fees and provides a $300 annual book allowance. Georgia students attending private in-state universities receive a lump $3,000 scholarship, in addition to a $1,000 "Georgia Tuition Equalization Grant" that has been on the books since 1973. Students have to keep up their academic record in college to remain eligible for funding.

Since its inauguration in 1993, the HOPE scholarship has helped finance the education of roughly 371,000 students. It's credited with-pushing up African-American enrollment at public universities by five percent. And by making college a plausible scenario for low-income students, these kids seem to be taking to the books in high school with renewed purpose. "For your students who might not otherwise have gone to college, it helps keep them focused," a Georgia high school guidance counselor told the Augusta Chronicle. It's not the first time students who have caught a glimpse of a brighter future begin buckling down to make it a reality. In 1981, Eugene Lang told a sixth grade Harlem class that he would pay for their college education if they graduated from high school. A subsequent "60 Minutes" segment pointed out that while two out of every three blacks and Hispanics in New York drop out of high school, nine out of 10 of Lang's kids made it to graduation.

But Lang's efforts differed from Georgia's program in a revealing way: While the millionaire New Yorker targeted students who were in true need of help, Georgia's program isn't designed to serve the most disadvantaged. There is no income cap on who can receive the HOPE scholarship, so a millionaire heiress attending Emory University could have $4,000 knocked off her tuition. At the same time, students who qualify for outside grants (e.g., the poor) have their funding subtracted from the HOPE stipend, so a student who obtains a full Pell Grant wouldn't receive any money at all from Georgia's coffers.

It would only take some slight tweaking to ensure the neediest Georgia students receive the most aid. A good place to start would be reimposing the $66,000 income cap on family eligibility that was originally part of the program. (Or, better yet, require higher income kids to perform community service for their stipend.) The state should also permit students receiving need-based aid grants to qualify for a full HOPE scholarship. Outside stipends may cover most of these kids' tuition expenses, but HOPE could defray room and board fees, which can be hefty.

Former Georgia Gov. Zell Miller says HOPE will be the cornerstone of his legacy, and he does not tire of detailing the accomplishments of the program. There is one fact in particular he and the program's flaks seem at pains to get across: The scholarship is paid for by the Georgia lottery. "This program comes at no cost to taxpayers," says Steve Tompkins, HOPE's director of communications. (Perhaps a more accurate way to put it is that the scholarship is underwritten by lottery-playing taxpayers, who are disproportionately disadvantaged.) The subtext isn't hard to make out--HOPE's popularity rests in no small part on its "free lunch" credentials.

Despite the flaws in the Georgia program, Miller deserves credit for making large-scale scholarships part of the higher education landscape again. Georgia isn't generally known for being ahead of the curve on public policy issues, but states like Maryland, Texas, and Washington are now introducing merit grant programs of their own. The federal government, meanwhile, is sticking to loans. That's not good news for university-bound kids. Today, about half of all students go into hock to finance their education. As they can attest, there's a big difference between attending school tuition-free and amassing debt that could have paid for a modest house in their parents' day.

The Loan Game

The student loan program came into being with the Higher Education Act of 1965. Until then, banks had balked at lending money to 18-year-olds with no credit history or collateral. To entice the banks, the Higher Ed bill threw some treats their way, offering to guarantee student loans and kicking in subsidies to boot. It turned out to be a sweet deal for the commercial interests: Student loans proved very profitable, and virtually risk-free. If a student defaulted on his loan, after all, Uncle Sam would pick up the tab. Needless to say, lenders didn't feel much pressure to clamp down on delinquent debtors, and the default rate reached a whopping 22.4 percent in 1990.

Clinton surveyed the wreckage of the loan system when he assumed office and decided to turn the old program on its head. Instead of funneling loans through heavily subsidized banking entities, the government itself would provide funds directly to students through their colleges. After a bitter battle with the banks, the so-called "direct lending" program was voted into law in 1993. The legislation allowed the government to take over only five percent of loans in the first year, with the possibility of monopolizing the system over the long haul. The Republican-controlled Congress slowed the transition, however, and today the government controls only one-third of the student loan volume.

Actually, it's probably a good thing Uncle Sam didn't take over the student loan program entirely: Competition between the government and private lenders in the student loan market has proven a boon to students. The banks cleaned up their act when they were no longer the only player in town. And some school administrators cannot say enough good things about direct lending--they describe the government's program the way a born-again Christian would relay the story of Jesus driving the money-lenders out of the temple. But even these advocates allow it's preferable for banks to maintain a presence in the loan market. "The way the system works now, students and schools are in the driver's seat," says one administrator. Kids can take advantage of new repayment options and lower rates, but it's also harder for them to wiggle out of their obligations. That's translated into savings for taxpayers: In 1996, the student default rate fell to 9.4 percent, its lowest level ever.

But there is more than a sliver of irony in all of this cheery news. A major reason Clinton pushed hard for direct lending was because he wanted to provide students with the option of paying back their debt as a percentage of their income. In other words, they pay what they can afford. Income-contingent loans are scarcely a liberal concept--it was first introduced by Milton Freedman in a 1955 essay--but Clinton saw it as a method of promoting the greater social good. If students didn't have to retire their loans in enormous installments, the theory went, they might gravitate toward low-paying but socially important jobs like teaching or social work. It could give graduates license to pursue their dreams--middle-aged entrepreneurs could open the widget factory they'd always fantasized about; recent graduates could attempt the Great American Novel. Income-contingent loans, in other words, could free graduates of all ages to assume career risks without risking default.

You would think kids would be tripping over themselves to take advantage of the income-contingent option. But less than one percent of new student borrowers in the direct loan program use the pay-as-you-can alternative. This is partially because banks have tried to undercut pay-as-you-can loans, which they fear might give the government-run program a competitive edge. But the administration has also done a poor job in marketing the income-contingent scheme. "If more students knew about it, more students would join up," says a former education department employee. "The department has just been gun-shy because it doesn't want to rankle any feathers with the Republicans who oppose direct lending."

It's too bad the administration has allowed itself to be intimidated, because the pay-as-you-can option can help students to break into rewarding, if not necessarily renumerative, careers. Take the example of a young man we'll call Tom. After attending law school, Tom was tens of thousands of dollars in hock. While he had spent a few summers as an associate in a corporate law firm, he was adamant about finding work in the non-profit sector. "There was no way I was going to the other side," he says. So the self-described tree-hugger signed up for a $25,000-a-year-position with an environmentalist group. His loans, however, were eating up almost half of his income. "I finally had to move out of my apartment and stay with friends in order to make the payments," he recounts.

Tom ultimately consolidated his loans under direct lending, and he is paying off his debt through the income-contingent option. His situation is still precarious--as he points out, pay-as-you-go doesn't mean you get out of settling your debt, and his income is low enough that any outlay of cash doesn't go unnoticed. But as Tom puts it, he's been saved from joining the dark side. "The payments are so huge under the traditional loan system that people aren't going to enter the non-profit sector," he warns. "In order to deal with their loans they'll take corporate jobs."

In my experience, Tom's pronouncement has proven all too correct. Over the last few years I've seen lots of students trade in their Birkenstocks for high heels and wingtips. It's possible many of these kids would have joined the ranks of corporate America even if they were free of student loans. My friend Angela, however, was different. A former VISTA volunteer, she was set on a career as a district attorney. When I checked up with her last year, however, she said student debt had driven her into the arms of a corporate law firm. "I never thought I would do this, but here I am," Angela said over the phone.

We ended up discussing my graduation present to her--a copy of Styron's Sophie's Choice. I had given the book to a couple of friends because it seemed to capture the nervous expectation of post-college life. But as it turns out, Styron's elegant musings on the possibility of youth are alien to many graduates today. While Pell grants, the HOPE scholarship, and income-contingent loans all mitigate the, cost of higher education, they only reach a small fraction of the students who can't pay for college without help. Student loans cast a pall over these kids' lives, and many are forced to shelve their dreams before they have a shot at making them a reality. "What do you do?" Angela surmised as we compared her situation to Styron's alter-ego of 50 years ago. "Things were just very different back then."

Research assistance provided by Brooke Foster and Megan Twohey
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Title Annotation:education finance reforms
Publication:Washington Monthly
Date:May 1, 1999
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