But banks have been reluctant to provide the volume of lending necessary on terms favorable to students. Most Administration officials think that plans like Harvard's are needed to provide students with large amounts of money and flexible repayment conditions.
"The major difference between this Plan and our former loan program is that we're clearly moving to a time when we'll have to increase the indebtedness of the individual student, and we need the funds and an effective program for protecting low-income students," Gibson commented.
The chief income protection provision of the Plan is the graduated repayment schedule. "We realize that the roughest period for repaying the loans will be the first few years, so we have tried to shift the burden to the end," Gibson said.
The government requires minimum quarterly payments on principal of $90, or $360 per year, and the University will use that figure as a base. Payments will then increase at the rate of 8.5 per cent a year, the estimated average rate of income increase for college graduates. On a loan of $4000, first-year payments would be $90 per quarter and tenth-year payments $207 per quarter.
A provision provision limits repayments in any one year to no more than 6 per cent of an individual's income or his share of joint income, whichever is higher. An unmarried graduate who makes less than $4000 or a married graduate who makes less than $6000 also receives a deferred payment privilege.
Deferred payments are one-year loans at 7 per cent for the amount in excess of what the graduate can pay, which may be renewed so long as the graduate remains in a low-income situation. Applications for post-ponement of payment are to be decided on the basis of Federal income tax returns. If any indebtedness remains after 13 years, the graduate may apply to have the loan "forgiven," with all repayment obligation cancelled.
GIBSON ESTIMATED last week that the College would lend out over $1 million next year under the new program to between 1000 and 1200 students. He predicted that the total University loan figure might reach $4 million although final figures are not available from several faculties.
This loan money comes from two sources: the old student loan budget which is tapped first, and the unrestricted funds of the University endowment. Despite a generous income protection policy, Gibson said he hopes that the program will eventually show a surplus.
The former student loan program provided a maximum of $3500 at 3 per cent with a "grace" period before interest payments began. The revenue to finance income protection is expected to come from the higher interest rate available under GILP--7 per cent from those not receiving Federal interest subsidies, and 7.75 per cent on subsidized loans. The extra three-quarters of a per cent is the current Federal interest supplement which may vary with market conditions.
The program's major drawback seems to be that commitment of endowment funds to long-term student loans may reduce the flexibility of Harvard's portfolio management. However, under the new Higher Educational Aid Bill passed by the House last Thursday, an agency may be established to allow lenders to sell their loan holdings on the open market.
The new agency, the National Student Loan Marketing Association, would initially be Federally controlled, but eventually ownership would be shifted to the institutions involved, creating an avenue for new capital to enter the loan program without tapping the endowment.
The aid bill--for which Harvard had strongly lobbied until an anti-busing amendment was attached in the Senate--also authorizes an unprecedented $1 billion-a-year program of direct grants to colleges and universities to be used at the schools' discretion.
ADMINISTRATION OFFICIALS at Harvard are fond of comparing their program with the much-publicized Yale Plan. Yale's long-term loan program--announced last Fall--provides for the repayment of indebtedness as a percentage of income over a 35-year period. The basis of the program is an attempt to have those who most benefit financially from their education bear the lion's share of the cost. Yale's plan does not utilize Federal subsidies.
Harvard officials say that the Yale Plan tends to penalize success. Under the Harvard Plan no student pays more than the amount he borrowed plus the 7 per cent interest charge.
"We're protecting the people at the bottom, Gibson said last week, but not by increasing the amount of indebtedness of those people at the top. Everybody knows what his indebtedness is, and he doesn't have to worry about being penalized for repaying his loan early. Our Plan also provides for a shorter period of indebtedness--10 to 13 years versus 35."
As usual, Harvard is pointing the way for other universities. Oberlin and several other major institutions are already studying the Harvard Plan for possible implementation. Hard-pressed colleges and harried parents throughout the country may owe Harvard a debt of graditude. But it seems likely that by the time the Class of '76 graduates some four years hence, they will owe Harvard a good deal more.