ED'S INCOME-CONTINGENT LOAN PROGRAM RIPPED AT HOUSE HEARING - Cont.

Sep 21, 2026

Congressional leader William Ford and prominent educators sharply criticized the Education Department’s proposal to replace the National Direct Student Loan program with income-contingent loans. They argued the plan would be unworkable, administratively complex for small institutions, and would rely on uncertain procedures for resetting borrower payments annually using tax-documented income. The hearing also highlighted state concerns that proposed federal aid cuts for 1987 would damage higher education and burden middle-income families.

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ED's Income-Contingent Loan Program Ripped at House Hearing

Program Criticism and Administration Concerns

Strong Doubts and Alternative Approaches

Budget Cuts Impact on Student Aid

Calls to Hold the Line on Education Spending

Friday,March 7,1986 Vo1.14,No.45 # ED'S INCOME-CONTINGENT LOAN PROGRAM RIPPED AT HOUSE HEARING While tying student loan repayment to income may be an admfr able idea,the Edu-cation Department's plan to replace the National Direct Student Loan(NDSL)program with"income-contingent"loans is unworkable,said a congressionalleader and two prominent educators yesterday. Likening ED's plan to a"Rube Goldberg contraption,"House Postsecondary Sub-committee Chairman William Ford,D-Mich.,said the House and Senate had“spenta great deal of time"studying income contingency during the 1980 Higher Edu-cation Act reauthorization process. Neither body could come up with a workable plan at that time and ED's new pro-posal succeeds no better,said Ford as the postsecondary panel completed itsfourth and final hearing on the Reagan administration'sBUDGET-fiscal 1987 budget proposal.’87Under ED's proposal,the NDSL program,with its 5 per- cent interest rate,would be converted into an unsub- sidized,income-contingent plan.Borrowers'payments would be redetermined an-nually on a progressive schedule based on total loan debt and adjusted grossincome figures documented through tax records.Only institutions electing toparticipate in the income-contingent plan would be eligible for new federalfunds to add to their NDSL revolving funds. Ford said the program would be"virtually impossible"for many small institu-tions to administer. Strong DoubtsW.Ann Reynolds,chancellor of the 325,000-student-Califor-nia State University system,agreed with Ford's criticism。"We have strongdoubts about accepting an additional costly burden of administering a programchar acterized by uncertainty and complexity,"she said. Reynolds said the present NDSL structure works well and should not be replaced."Our systemwide default rate as of last June 30 was only 5.87 percent,"shesaid,adding that such success is due to "intensified billing and collectionefforts." The Rev.Robert Mitchell,president of the University of Detroit,suggestedthat the federal government might better apply income-contingent repayment tothe Guar anteed Student Loan(GSL)program,since it appears to have betteraccess to Internal Revenue Service income information. "We,frank1y,are concerned … about the awkward position for institutions in(more) (O Mar ch 7,1986 # ED's INCOME-CONTINGENT LOAN PROGRAM RIPPED AT HOUSE HEARING(Cont.) having to request tax forms from alumni to whom we must also make appeals foralumni support,"Mitchell said. Ford indicated that ED should have studied income contingency in greater detailbefore floating its proposal. "I don't believe anybody at ED or OMB [the Office of Management and Budget]ever talked to us about it,"he said,adding that education officials from boththe Carter and Nixon administrations could have shed light on the trials andtribulations of exploring income-contingent student loan repayment progr ams. Budget Cuts LambastedED's income-contingent loan program was not theonly proposal receiving criticism yesterday.State officials from Massachu-setts and New Jersey said plans to cut feder al student aid in fiscal 1987 wouldseverely damage higher education in their states. John 01ver,a Massachusetts state senator from Amherst,said his state wouldsustain a 30 percent cut,or $120 million,in federal student aid funds if ED'sbudget is approved."Under this proposal,everyone loses,"he said."Thereare no winners." In recent years,0lver said,Massachusetts has poured more of its own moneyinto state student programs."But we are in no way able to pick up more than afraction of the $120 million loss,"he added. T.Edward Hollander,New Jersey's Chancellor of Higher Education,said hisstate has nearly doubled the amount of state grant aid funneled to undergradu-ate students,"while the amount of federal grant aid has remained the same yearafter year."The cuts proposed for federal student aid programs would repre-sent a loss of about $100 million to New Jersey stu

FAQs

What change did the Education Department propose for student loans?

It proposed replacing the National Direct Student Loan program with income-contingent loans that would adjust borrower payments annually based on a progressive schedule tied to total loan debt and tax-documented adjusted gross income.

Why did William Ford and others criticize the income-contingent loan plan?

They said it was unworkable and too complex, likened the concept to a Rube Goldberg contraption, and argued many institutions—especially small ones—would find administration virtually impossible.

How did state officials say federal aid cuts for fiscal 1987 would affect higher education?

They warned the cuts would severely harm their states’ higher education systems, shifting losses to students and middle-income families and reducing grant and loan support.

Sep 21, 2026

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