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Higher-Education Plan Focuses on Service, Loan Issues

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WASHINGTON--President Clinton was poised late last week to unveil a long-awaited legislative package that would create a federally chartered corporation to oversee a national service program, replace the existing student-loan program with a system of direct loans made with federal capital, and call for extensive use of a loan repayment plan that would base payments on a borrower's income.

The scheduled announcement, in a speech to be delivered on April 30 at the University of New Orleans, was to come during the week of Mr. Clinton's 100th day in office. Administration officials said the timing was intended to signal the importance the President places on the legislation.

While the Administration was expected to introduce it as one package, the legislation may be broken up to facilitate movement through Congressional committees.

The House Education and Labor Committee will give almost immediate attention--with few, if any, hearings--to the portion of the legislation that would replace the current loan system with direct loans, an aide said.

That is because the Administration claims the switch will save the government at least $4.2 billion through fiscal 1997. The fiscal 1994 budget resolution approved by Congress includes those savings, and education committees are required to make changes in programs under their jurisdiction to achieve them. The House committee must complete its work by May 14.

Down to the Wire

However, it appeared late last week that the student loan provisions in the package, which are being developed by officials in the Education Department, remained sketchy.

Higher-education lobbyists and Congressional aides who had been briefed on that portion of the legislation or seen draft copies of it said much remains to be detailed.

"It sounded like they're going to leave a lot up to the Secretary through the regulation process,'' said one lobbyist.

Under the Administration's proposal, according to aides and lobbyists:

  • The direct loan program would be launched in the 1994-95 academic year and phased in gradually so that it is fully in operation by the 1997-98 academic year, when the current student loan programs would cease operations.

Institutions would serve as the intermediary between the federal government and student borrowers, and administer student loans that are made with government funds. Institutions that do not want to originate loans would use an alternative originator designated by the government.

  • A pilot direct-loan program, authorized last year in the Higher Education Act, would be shelved.
  • The direct-loan program would encourage income-contingent repayment and would involve the Internal Revenue Service in collecting those payments. In addition, the Education Department would be instructed to study the possibility of having the I.R.S. collect all loan payments.
  • The interest rate for borrowers would be lowered slightly once the direct loan program is fully operational. Although aides and lobbyists said the amount of the reduction is somewhat unclear, the Administration's fiscal 1994 budget promises a 0.6 percent reduction.
  • The government would have the authority to award contracts for all tasks that are part of the loan process, from origination to servicing.

Easing the Transition

The Education Department would be authorized to work with the Student Loan Marketing Association, known as Sallie Mae, and guarantee agencies to insure as smooth a transition as possible to the new direct loan system. Sallie Mae is the nation's largest buyer of student loans on the secondary market.

The government would study the feasibility of privatizing Sallie Mae, which was established by Congress in 1972 so that a secondary market for student loans would exist.

Sallie Mae officials and other participants in the current program have presented the Clinton Administration with their own proposals for revamping the student-loan program. (See related story below.)

A Sallie Mae spokeswoman said she could not comment on the Administration's privatization proposal until she had seen the legislation.

Most lobbyists and Congressional aides also declined to comment until they had a chance to study the Administration's proposal, although one lobbyist said the idea of I.R.S. taking over loan collections "is very scary to us.''

"They've done a really good job, but there are some things that I'd like to see changed over the next few days,'' said one Senate Democratic aide familiar with the legislation. "It's clearly written and creatively written.''

The aide said that the language allowing colleges to opt out of origination "should put to rest a lot of concerns that some college presidents have raised.''

National Service

The national-service program--the drafting of which is being overseen by William Galston, a University of Maryland professor who is serving as a deputy assistant to the President for domestic policy--would receive $5.8 billion through fiscal 1997 to move toward full operation.

The program would be administered by a federal corporation that would eventually assume the duties of the Commission on National and Community Service and ACTION, the agency that runs the VISTA program.

The corporation's 11-member board of directors--whose first members would be drawn from the commission's board--would work with seven non-voting Cabinet members to set a vision for the corporation, approve grants, review policy and personnel decisions, and act on reports from the agency's inspector general.

Although the President is to appoint board members and the Democratically controlled Senate would approve them, Administration officials said the board would be bipartisan.

The corporation would administer a trust fund into which the government makes deposits on behalf of service workers. Donations to the trust would be accepted.

The corporation would make payments from the fund directly to institutions or lenders. Recipients would receive $6,500 for each full year of service--at least 1,500 hours--and those awards, which would be nontaxable, must be used within five years.

According to documents from the White House Office of National Service, the directors of local and national programs would decide which individuals can participate, "on a nondiscriminatory basis and without regard to political affiliation.''

Critics of the proposed program contend that because eligibility would not based on income, it could devolve into one in which only middle- and upper-class students participate.

Mr. Clinton has suggested that he wants a diverse group of participants. A source in the Office of National Service source said that the diversity of the programs will drive the diversity of participants.

Selection Criteria

"It's really based on quality people and local needs,'' she said. "It's very flexible with no set quotas or requirements.''

A wide variety of local and national program models, which would either be funded directly by the corporation or by state commissions distributing money on behalf of the corporation, would be accepted into the program.

They will be selected based on the need of the communities they serve; their past experience and management skills; and their innovation, sustainability, replicability, and quality, according to the documents.

States would be required to set up a commission, appointed by the governor, to select grantees and to draw up a strategic plan for service.

The Administration's legislation also includes provisions to extend and improve programs created by the National Community Service Act of 1990 to target community service and service learning in elementary and secondary schools.

It would also create a federal service program clearinghouse, called the Investment Fund for Quality, to assist in the development of high-quality national-service programs, and extend the Volunteers In Service To America and Older American Volunteer programs.

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