Educators worry about shakeup of federal loan program

Washington — The University of Connecticut and colleges across the nation are concerned about the Obama administration’s plans to overhaul a loan program for the poorest students.

As Congress fights over how to avoid an interest rate increase on the popular Stafford loans, college administrators are focusing on plans for the Perkins loan program.

Stafford loans are available to all students. But the neediest students can borrow additional money from the federally subsidized Perkins loan program.

About 5,600 college students in Connecticut borrowed from that program in the 2010-2011 school year.

The administration wants to boost — by $8.5 billion — the amount of money available to students through Perkins loans and increase the number of two- and four-year colleges in the program. Schools in the new Perkins loan program would no longer have to provide matching funds.

But this carrot would be accompanied by a stick.

Perkins loan money would go only to schools that don’t raise their tuition by much and whose graduates are able to quickly find jobs.

Those requirements worry college administrators like Mona Lucas, interim director of student financial aid services at UConn.

“That’s the dilemma. How can we keep offering a quality education without raising tuition?” she asked. “I don’t know how we could accomplish that.”

Nearly all of Connecticut’s colleges, public and private, have had a series of tuition increases in the past few years, and more increases are expected.

UConn’s cost for tuition, room and board, for instance, will increase from about $21,000 to $23,000 in the fall.

Lucas said that about 1,700 students at her school are slated to receive Perkins loans to help pay for the 2012-2013 school year’s tuition and other expenses. The amount isn’t much, averaging little more than $1,500 per student, but it helps those struggling to pay for school, Lucas said.

The university has more requests for these loans than it can fill with its $2 million budget for the program. Cutting that money is ill-conceived, Lucas said.

“You wouldn’t be penalizing schools as a whole, you would be penalizing needy students,” she said.

Poorly performing schools, or those whose tuitions rise at a faster clip than inflation would also lose supplemental education grants and money for work-study programs under the Obama administration’s plan. About 8,000 Connecticut students participated in the work-study programs in the 2010-2011 school year.

Authorized by Congress in 1958, the Perkins loan program established revolving funds at participating schools. As students paid off their loans, that money would be used to make new loans. Interest on these loans would be paid by the federal government until six months after graduation.

The new Perkins program would require all schools to return the loan money Washington has given them over the years. The Department of Education estimates that 80 percent of the money schools have available for Perkins loans belongs to the federal government and would have to be returned by law if Congress doesn’t reauthorize the program before 2014.

Under the overhaul, money returned from the schools would be redistributed by the Department of, Education to interested colleges that met the administration’s qualifications through a new formula.

That would hurt New England colleges because they benefit more than others from the current formula — which was shaped by lawmakers from the area, including former Sens. Edward Kennedy, D-Mass., and Chris Dodd., D-Conn.

Jeff Appel, senior policy adviser for student financial aid at the U.S. Department of Education, said an overhaul of the program is needed because Congress has not increased its funding for years.

He said schools shouldn’t worry about being penalized for raising tuition because that policy won’t be “hard and fast.” He also said that Connecticut’s colleges should not be concerned about losing out when Perkins loan money is redistributed because $8.5 billion will be added to the pot.

“People are given to worry that they’ll lose something,” Appel said. “But those fears are going to be allayed by all the new money in the program.”

All public four-year colleges in Connecticut participate in the Perkins loan program, as do Yale University and 12 other private colleges in the state. But only one two-year school, Tunxis Community College in Farmington, has students who have received Perkins loans. The administration wants more community colleges and technical schools to join the program.

Dominic Yoia, Qunnipiac University’s senior director of financial aid, said the Perkins program has suffered because the federal government hasn’t contributed new money to it in years. He said many schools, including his, are rethinking their participation in it.

“There’s a lot of work in managing the loans,” Yoia said.

Attaching “new strings” to federal money for the loans will make the program even more unattractive to colleges, Yoia said.

‘You can’t hold their feet to the fire for something that’s out of their control,” he said of colleges’ rising tuition costs. “A lot of schools are questioning the viability of the program.”

Quinnipiac University gives about 350 students a $1,000 Perkins loan each year.

Terry Hartle, senior vice president at the Washington-based American Council on Education, said the Obama administration has “a germ of an idea” that’s virtually impossible to implement in its current form.

One big problem is there’s no way to track how a school’s graduates fare in the job market, Hartle said.

“What we have here is an interesting intellectual idea,” he said. “But we’re a long way from a coherent proposal and even further away from something Congress can vote on.”

Hartle also said polls and focus groups that show there’s great concern about the affordability of college have driven the administration’s plan, at least in part.

“It’s a terrific election-year issue,” he said.