Low-cost US loans: helping hand goes back into pocket?

President Reagan's goal of curbing the growth of federal laons and credit guarantees by $34.6 billion this year and next will lean most heavily on Americans queued at the threshold of productive careers.

Students, young home-buyers, the start-up farmer, and small businessmen, who are considered credit risks, will find themselves more on their own in staking their investments in education, a first house, farm, or shop.

At least, this is the argument of those who think the government has a place in creating loan guarantees for the threshold borrower because of its vaster resources and a greater ability to spread risk than private lenders enjoy.

Others, such as Reagan administration economists, see the government's loan programs growing faster then the federal budget itself -- from $200 billion in 1970 to $800 billion in 1982, before Reagan's proposed cuts.

"It's courageous for them to take on the federal credit issue," says Rudolf Penner, a former Ford administration budget official. "There's not much immediate effect on budget totals from the credit curbs, and there will be a lot of political flack."

Government-subsidized borrowers, from homeowners and rural electric cooperative to shipbuilders, compete with one another as well as against the general lineup of borrowers in society, Mr. Penner says.

The Reagan budget proposes direct loan and credit guarantee cuts of $13.6 billion in fiscal 1981, and $21 billion in fiscal 1982. Housing loans under the Federal Housing Administration would be reduced by $4.8 billion in 1981 and $9 billion in 1982. Department of Education government-backed student loans would be increased by $1 billion in 1981, then cut by $1.4 billion in 1982. After 1982, the Department of Education would have to go to the private capital market for funds, meaning an end to interest-free loans during the time students are in college.

Other cuts include $650 million in loan guarantees from merchant shipbuilding in 1981 and 1982 and $3.2 billion from lending for public housing and construction. Direct loans to small business would be trimmed $161 million, and loan guarantees by almost $2.5 billion.

What is needed is not simply loan cutbacks, but better targeting of government credit aid so the undeserving do not unfairly benefit, some budget experts say.

"These programs must be extremely well-targeted -- which would require considerably more administration than they get -- to make sure small business loans don't go to individuals who don't need them or to children whose parents are just taking the money and investing it in a money market fund," says Carey Leahey, budget analyst for Data Resources Inc. (DRI). "Given that these budget cuts may be done very quickly, they're more likely to affect individuals who shouldn't be hurt but will . . . fall through the cracks."

Young farmers are among those who might fall through the cracks, says Robert Wisner, an Iowa State University agricultural economist. The administration wants $2.8 billion in cuts for Farmers Home Administration (FHA) farm ownership and disaster loans.

"The FHA has typically been the source of credit for farmers," Mr. Wisner says. "The availability of loans and government insurance on farm loans are significant for young farmers trying to get started in agriculture, who are not easily able to get funds in commercial markets."

Educators complain the Reagan student loan curbs imply a contradiction in the administration's goal of boosting economic gains.

Virginia Hodgkinson, executive director of the National Association of Independent Colleges and Universities, says, "If you're for human productivity and for rebuilding the economy, what you need is strong higher education and research."

The student loan cuts will create "horrendous cash flow problems" for middle-class families who typically must pay $7,000 or more for four years of college for their children. Increasing costs to families will divert more students from private to public universities, she says, adding to taxpayer pressures for state education support.

Abuses of the interest-free student loans are not enough to justify radical cuts, Mrs. Hodgkinson says.

Congress will likely review the integrity and impact of the loan programs targeted by Reagan -- and by Jimmy Carter in his own fiscal 1982 budget released in January -- DRI 's Leahey says.