How middle-income students get a hand with college costs

During a brief stint in the working world, Boston University graduate student John Hipple earned too much money to qualify for a federal student loan. But thanks to a new privately financed loan program for middle-income families, he's back in school this semester.

In what is believed to be a first-ever joint loan program financed by a bond offering (in this case, $20.2 million), 11 Massachusetts colleges are offering 15-year loans to approximately 4,000 students from middle- and upper-income families. The interest rates are comparable to those on federal Guaranteed Student Loans (GSL), which many middle-income families can't qualify for because of new regulations.

The loans are intended for students of middle-income families, says state Sen. Chester G. Atkins, chairman of the Massachusetts Senate Ways and Means Committee, ''because the costs of higher education are financially killing people who aren't extremely rich or poor enough to receive traditional financial aid. The middle-income student has been significantly discriminated against.''

Jack Sheehan, director of student financial assistance at Boston University, agrees.

''Most people don't understand the cash-flow problem to the family who makes extenuating circumstances,'' he claims. ''After taxes and other expenses, this family could really be in trouble.''

Although individual colleges in other states have floated bonds to finance student loans, the Massachusetts program is believed to be the first that pools resources from different schools. Pooled financing ''allows schools to share the costs under one legal document,'' says Arthur Spector, a vice-president in the investment department of Goldman Sachs, senior underwriting group in the program.

This allows smaller institutions that otherwise couldn't afford such a venture to participate, Mr. Spector says. Because of the pooled financing approach, participants range from Harvard University to Mt. Ida Junior College, a small school near Boston. Other schools in the consortium include Boston University, Boston College, Simmons College, and Clark University.

The Massachusetts bond-loan package is serving as a model for similar programs being started in Illinois, New Hampshire, Maine, Iowa, and Maryland. And still more states have expressed interest in it, according to Gale Merseth, executive director of the Massachusetts College Student Loan Authority (MCSLA).

Students eligible for federal GSLs can borrow up to $2,500 a year as undergraduates and $5,000 as graduate students. But because of the new rules, students whose families earned more than $30,000 in the previous year must now demonstrate need.

Mr. Hipple, for example, made too much money last year as an office manager for the Ryder Systems Inc. to qualify for a GSL. But since he has returned as a full-time student, he will no longer be earning this income.

The number of GSLs has dropped approximately 20 percent since fiscal 1981, even though federal spending on the loans has almost doubled, according to Carol Crane of the Massachusetts Higher Education Assistance Corporation. She attributes more than half of this decline to the tighter restrictions.

The new Massachusetts loans are intended either for those not eligible for a GSL or as a supplement to a GSL or other financial aid. A student's family can borrow up to 75 percent of the total cost of a four-year college education at an interest rate comparable to that of a GSL. But the payments will be significantly smaller since they are spread over 15 years.

Authority officials hope the combination of an extended loan-repayment schedule and stringent credit requirements will result in a much lower default rate than the federal government is experiencing in its loan programs - a tab that is ultimately picked up by the taxpayer. Spector says he expects the default rate to be no higher than 1 percent.

Although the bonds are among the first without any federal or state insurance , they have been given a secure ''AAA'' rating from Standard & Poors Corporation. According to Frank Rizzo, a spokesman for Standard & Poors, this rating is largely due to an intricate reserve system that includes insurance by MGIC Indemnity Corporation in Wisconsin.

The idea of pooled bond sales to provide student finanicial assistance is one of many responses to a shrinking federal student assistance budget. And MCSLA chairman D. Thomas Trigg says it is ''an excellent use of the tax-exempt status.''