STUDENT LOAN BANK, COLLEGE IRA PUSHED AS WAVE OF THE FUTURE - read online free

Sep 21, 2026

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Reagan administration proposals introduce two student-aid mechanisms: a National Student Loan Bank and a college savings plan using Individual Retirement Accounts (IRAs). Researchers Arthur Hauptman and Michael McPherson argue these options could help compensate for likely cuts to the Guaranteed Student Loan program, describing loan capital sources, self-sufficient government costs, graduated repayment, and servicing responsibilities. Critics question feasibility and fairness, while the IRA plan’s tax treatment is evaluated for its expected adoption and limited impact on overall enrollment.

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STUDENT LOAN BANK, COLLEGE IRA PUSHED AS WAVE OF THE FUTURE

Loan bank proposal and repayment design

Criticism of the loan bank and incentives

College IRA savings plan and tax treatment

Estimated participation and enrollment effects

Reactions from university leaders

Vo1。14,No。28 Tuesday,February 11,1986 # STUDENT LOAN BANK,COLLEGE IRA PUSHED AS WAVE OF THE FUTURE With the Reagan administration again proposing massive cuts in student aid,thetime may be ripe for two untested ideas to supplement federal student assis-tance--a National Student Loan Bank and a college savings plan based on Indi-vidual Retirement Accounts(IRA)--college officials were told last week. Student aid researchers Arthur Hauptman and Michael McPherson told a conferenceof the National Association of Independent Colleges and Universities(NAICU)that,particularly because the Guaranteed Student Loan(GSL)program has beentargeted for cuts in 1987,independent colleges should look to the future ofstudent aid. "If anything ever does happen to [the GSL program],there will be substantialproblems”for NAICU institutions,said Hauptman,a Washington,D.C.-based con-sultant. —Conference·Both Hauptman and McPherson,a Brookings Institu-Reporttion fellow,presented papers last week outliningtheir ideas--ideas that may be the"first step intothe next decade,"according to John Frazer,execu- tive director of the Counci1 of Independent Kentucky Colleges and Universities. Unlike several previous loan bank proposals advocating a complete restructuringof the GSL program,Hauptman said a loan bank program should instead be“a vi-able alternative"within the current federal structure. Under Hauptman's plan,loan bank capital would be generated from a centralizedsource,such as the federal government,colleges and universities themselvesor private-sector lenders.Hauptman argued that colleges should be requlredto contribute at least a portion of the capital. Costs Limited Long-term cost to the government would be limited,Hauptmansaid,since interest rates to borrowers would be set high enough to make theprogram self-sufficient.Interest rates could be capped,he added,thussheltering student borrowers from rapid increases in the Treasury Bill rate. Loan repayment would be geared to a borrower's ability to repay,using an ex-tended graduated repayment schedule with smaller payments in the early years.Hauptman recommended that primary responsiblity for servicing the loans liewith the banks and agencies currently handling GSLs. Private college enrollment has remained healthy,to a large extent,because of(more) 6 February 11,1986 # LOAN BANK,COLLEGE SAVINGS IRA PUSHED(Cont.) the GSL program,according to Hauptman.Administrative proposals to cut incen-tives to GSL lenders could cause lenders to leave the program,he added,in-creasing the need for an alternative loan program such as the loan bank. Rev.Will1am Sullivan,president of Seattle University,doubted the viabilityof the loan bank,however,calling it"the wrong solution to a very real prob-lem。"Instead,he suggested,private institutions should fight to protect andimprove the existing GSL program。 Sullivan said the federal government is unlikely to appropriate funds for a newstudent aid program,and institutions themselves have little available money.Costs of such a program ultimately would be shifted to students who could 111afford market interest rates,he said. Getting The Milk FreeClaims by banks that a reduction in incentiveswould cause many to leave the GSL program are false,Sullivan added.BecauseGSLs are guaranteed by the federalgovernnent,he said,banks are unlikely togive up a guaranteed"income cow." McPherson's college IRA plan received little criticism,although he admittedthat its main appeal would be to high-income families. Like the IRA plan already place for retirement pur poses,McPherson's collegesavings plan would allow families annually to save a set amount of money with-out taxation on the interest until the money is withdrawn.Upon withdrawal,the funds either would be taxed at the parents'tax rate or at the child'smarginal rate. The IRA plan has been necessitated by the rapid increase in college costs,McPherson said.At one time,he noted,parents were expected to

FAQs

What two new ideas were proposed to supplement federal student aid?

A National Student Loan Bank and a college savings plan based on Individual Retirement Accounts (IRAs).

What impact does McPherson expect the IRA program to have on higher education participation?

He predicts it would attract about half of families with children in private institutions and about a quarter in public colleges, but it would probably have little effect on overall participation.

Sep 21, 2026

Uploaded by Rowan