Federal financial aid to college students could be substantially decreased, and a new loan program initiated if Congress passes President Reagan’s proposed budget for fiscal year 1988.

Under the proposed budget, Pell grants would be cut about $1 million from the level appropriated for FY‘87. National Direct Student Loans would be lowered substantially in 1988, or converted to the new loan program, said Mary Preston, legislative director of the United States Student Association (USSA). Guaranteed student loans also would be reduced and work-study programs would be eliminated, Preston said.

Along with the cuts, Reagan proposed $600 million be used for a new Income Contingent Loan (ICL) program. Unlike GSLs and NDSLs, the new loan program would not have a fixed interest rate, but would be tied to economic conditions as are other types of loans. In addition, the loans will accrue interest while the student is attending school, Preston said.

Preston said that while the USSA supports the $5 million now used by 10 schools to test the new loan program, they are opposed to the $600 million plan which could include cuts in other programs.

Before any of these proposals could become law, they must pass through Congress. Sen. Paul Simon, D-Ill, delivered a statement saying, “The administration’s proposed education budget would further limit access of those of modest means to higher education, and it runs counter to much of what secretary Bennet has said about improving quality in our schools.”

Jerry Augsburger, NIU director of financial aids, said any cuts have “the potential of creating a situation where some students would not be able to attend college.”

The proposed loan program could cause administrative problems for NIU, Augsburger said. There would have to be an annual income confirmation to determine the monthly amount debtors would have to pay back. This would be a “very time-consuming and difficult administrative function,” he said.

The proposal for ICLs comes at a time when the number of students borrowing and the amounts borrowed have been increasing, according to a recent congressional study. Augsburger said this is the first loan study of consequence and more (studies) will probably follow.

The increase in loans has been a concern of people in higher education, Augsburger said. Increased debts by students might mean students will choose majors on the basis of income potential, he said.