House Republicans said last week that they may scrap their plans to eliminate the in-school interest subsidy for graduate and professional students with student loans. And they plan to pay for it by killing the Clinton Administration’s direct-lending program.
Many Republicans want to limit or eliminate direct lending, anyway. Critics argue that making loans directly to students, rather than through commercial lenders, is fraught with management pitfalls and that eliminating the profits of lenders and guarantors will not save as much money as the Administration claims.
Last week, G.O.P. lawmakers contended that eliminating direct loans would actually save money. But their claims are based on a change in accounting rules.
Under the new rules, outlined in the budget resolution approved by Congress in June, direct lending’s administrative costs--including some one-time expenses--are counted as expenditures in the year they are incurred. Since the Credit Reform Act of 1990 was enacted, federal loan programs have stretched such costs over several years for accounting purposes.
Accounting Change
A new Congressional Budget Office analysis released by Republican lawmakers last week indicates that under these new rules, the elimination of direct lending could save $1.5 billion over the next seven years--even though retaining the program might save money in the long run.
Those savings, plus another $1.5 billion extracted from lenders and guarantors in the guaranteed-loan system, could save the interest subsidy, said Rep. Bill Goodling, R-Pa., the chairman of the House Economic and Educational Opportunities Committee.
That panel must find $10 billion worth of programmatic changes to help meet budget targets.
Administration officials and other defenders of direct lending say the G.O.P. is playing politics with student loans and threatening the aid programs’ stability.
“Making this a partisan, polarizing issue is just a disservice,” said Deputy Secretary of Education Madeleine M. Kunin.
But Mr. Goodling told reporters that it is the Administration’s claims of savings that are a result of “smoke and mirrors.”
