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Loan program is needed Governor cuts financial aid, but offers help with borrowing

College students, seldom blessed with excess money, also are among those impacted by the weakened economy. Gov. David A. Paterson's plan to help them acquire loans with interest rates significantly below those of current private loans should prove helpful.

But Paterson also earns criticism for his accompanying proposal to reduce Tuition Assistance Program grants in combination with a $600 tuition increase in public colleges.

As Blair Horner of the New York Public Interest Research Group recently pointed out, ". . . what one hand giveth the other taketh away."

Despite the contradiction -- in fact, because of it -- getting the New York Higher Education Loan Program(NYHELPS) in place is important. A low-cost loan program to help 45,000 students enrolled in a public or private school in New York will pay huge future dividends. It's a crucial piece of the local and statewide effort to attract and retain students -- many of whom could receive as much as $10,000 a year through the program, if already receiving the maximum state and federal aid.

The program would provide $350 million in loans each year. The state would spend $50 million next year to begin, and $10 million annually. The money would fill a cash pool that protects lenders against borrower default, thus easing reluctance to loan to students in these times of tight credit and risk wariness. Colleges will contribute, with a nominal fee based on loan volume participation. Banks would have to underwrite the loans, which the state would support using revenue from tax-exempt bonds.

Paterson is on the right track in financing the program despite the state's estimated $15 billion budget deficit. The state, as he said, must stay competitive with other states offering similar incentives, and the benefits to Western New York would be significant.

There are practical caveats, including a proposed increase in the minimum grade point average for eligibility from 1.1 to 1.8, and a requirement that any public pension money received by applicants be counted as income (private pensions already are counted). In addition, students would have to be enrolled at least half time, and have an eligible co-signer in New York.

Moreover, the program would require that borrowers complete a comprehensive Web-based financial literacy program, a component that will go a long way toward helping them manage all kinds of finances in their futures.

Currently, many students are borrowing at double-digit rates up to 17 percent, and the federal government is offering loans up to $5,500. Combine those two factors and there's potential for eternal debt. The governor's plan would lead to average interest rates of about 8 percent on program loans.

Today's students are piecing together their college costs through loans, grants or scholarships and, for some, by tapping money from their parents. Those getting hurt the worst are those who cannot afford high-interest loan rates, putting their credit scores at risk well into the future.

While it would be even better if the governor weren't proposing to cut their financial aid at the same time, this plan could help keep some students in college and should ease the financial burden not only for students but for their families.

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