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Senate Panel Backs Expansion of Direct-Loan Pilot

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WASHINGTON--The Senate Labor and Human Resources Committee last week approved a compromise bill that would expand the current pilot program under which the federal government lends money directly to college students and establish a commission to monitor the experiment.

As part of his deficit-reduction strategy, President Clinton proposed replacing the current Federal Family Education Loan Program, in which the federal government guarantees banks' loans to students, with direct lending.

The idea is strongly opposed by the banking industry, which stands to lose a profitable line of business. In addition, others say there is no proof the government would save money by running the program itself.

Under the compromise bill, the Education Department would phase in direct lending over four years. By academic year 1997-98, the federal government's share of loan volume would be no greater than 50 percent.

By that time, Congress will need to reauthorize the Higher Education Act, a circumstance that will make the conversion to a direct-loan program relatively smoother, said Sen. Edward M. Kennedy, D-Mass., the chairman of the Labor and Human Resources Committee.

Congress at that time also will have the benefit of information on how the direct-loan experiment has worked gathered by the 15-member, bipartisan student-loan panel.

Pell Withholds Support

The Administration and Senate proponents of an immediate shift to direct lending backed off when Sen. Claiborne Pell, D-R.I., the chairman of the Senate Subcommittee on Education, Arts, and Humanities, declined to support the measure.

"Senator Pell clearly was very much concerned that he could not support the Administration's proposal unless the matters that he voiced were taken under consideration,'' an aide to the senator said. "Pell is not a particularly loud person, but when he sets his mind on something, he becomes very persistent.''

The White House wanted the support of Mr. Pell, the senator most closely identified with college access and for whom the Pell Grant program is named. Likewise, Mr. Pell wanted to support the President publicly, the aide said.

To gain support from Republicans who had said they would vote against the measure, Democrats agreed to limit the government's share of loan volume to no greater than 50 percent. Under an earlier draft, the government's share would have been no less than 50 percent after the program's fourth year.

That change cost the bill two Democratic votes--those of Sens. Tom Harkin, D-Iowa, and Paul Wellstone, D-Minn.--but earned it unanimous approval from the Republicans.

Approval of the compromise plan came during the committee's work to chop $4.6 billion from programs under its jurisdiction as part of the budget-reconciliation process.

The changes to the Federal Family Education Loan Program are supposed to reduce government spending by $4.3 billion over the next five years.

About half of those anticipated savings would come from the move to direct lending. Under the compromise, 5 percent of student loans would be made directly by the federal government in academic year 1994-95, the program's first; 30 percent in the program's second year; 40 percent in its third year; and up to 50 percent in the fourth year.

The Education Department would determine schools' and students' eligibility to participate, according to the plan.

Other Savings

Another $2 billion in savings would come from reducing the profits of lenders, guarantors, and secondary markets participating in the existing system.

For example, loan-origination fees would be reduced from 5 percent to 3 percent, and loan-insurance fees would be reduced from 3 percent to 1 percent.

It is unclear when the full Senate will vote on the measure. The Labor and Human Resources Committee and other Senate panels must submit their reconciliation recommendations to the Senate Budget Committee by June 18, which in turn will develop an omnibus reconciliation bill for floor consideration.

The reconciliation bill already passed by the House included a nearly intact version of Mr. Clinton's original proposal.

Maureen McLaughlin, the acting assistant secretary for postsecondary education, said the Administration will "push for full implementation when we go to conference.''

In a related development, the House Education and Labor Committee and the Senate Labor and Human Resources Commitee both had been scheduled last week to mark up the President's national-service legislation, but deferred action until this week.

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