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Senate Approves Its Version of Direct-Lending Legislation

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WASHINGTON--The Senate last month narrowly approved a budget-reconciliation bill that would achieve $4.3 billion in savings over five years by taking steps to replace the Federal Family Education Loan Program with one in which the federal government makes loans directly to students through higher-education institutions.

But recent developments have cast doubt on the depth of Congressional support for the direct-lending concept, and Clinton Administration officials apparently face considerable obstacles as they seek endorsement of a full-scale program.

S 1134 was approved by a 50-to-49 vote only after Vice President Gore broke a tie.

The bill would allow up to 50 percent of the total loan volume to be made directly by the government by academic year 1997-98. About one-half of the savings would come from the move to direct lending, while the other half would come from reducing subsidies to lenders and guarantors.

The bill also calls for a reduction in student origination fees.

By contrast, a companion House measure, HR 2264, purports to save $4.3 billion over five years by entirely replacing the current program with direct loans, as proposed by the Clinton Administration.

Both plans would begin in fiscal 1994 with a small number of loans, as called for in a pilot program already authorized by 1992 amendments to the Higher Education Act.

An aide to Rep. William D. Ford, D-Mich., who chairs the House Education and Labor Committee, said last week that negotiations with the Senate over the direct-lending provisions of the two reconciliation bills had yet to commence.

But White House officials, House Ways and Means Committee leaders, and Senate Finance Committee leaders are already working to achieve a compromise on many of the broader taxation, spending, and fiscal-savings issues contained in S 1134 and HR 2264. A formal conference is not expected to convene until later this month.

In a move that could affect the outcome of negotiations between the House and the Senate on the direct-loan issue, the House recently voted overwhelmingly to approve an amendment to HR 2518, the fiscal 1994 social-services spending bill, that would restrict federal direct lending in the fiscal year starting Oct. 1 to 4 percent of the total loan volume.

Mr. Ford urged his colleagues to vote for the amendment--even though he is a strong proponent of direct lending--because he said it was meaningless. He said that the amendment simply clarifies current law, which provides for the pilot program, and that reconciliation language would take precedence over the appropriations provision.

However, an aide to Rep. Bill Goodling of Pennsylvania, the ranking Republican on the Education and Labor Committee, said that the amendment would take precedence in fiscal 1994. Mr. Goodling sponsored the amendment along with Rep. Bart Gordon, D-Tenn.

"I think it's very significant that the Democrats didn't fight it, because to me that means that maybe they didn't have the votes'' to defeat the amendment, the aide said.

Regulations Published

Meanwhile, the Education Department in the July 2 Federal Register issued final regulations for the four-year direct-loan pilot program, which is limited to $500 million in total loan volume.

The regulations outline which higher-education institutions are eligible to participate in the pilot program, how they will work with the department to provide loans to students, and the responsibilities of the institutions and the borrowers.

The regulations note that if the Administration wins approval for a large-scale direct-loan program, new regulations will be needed.

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