Clinton Direct-Loan Plan Clears Panel

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WASHINGTON--President Clinton's proposal to replace the current federal student-loan program with one in which the government would make loans directly to students survived its first round of Congressional scrutiny last week when the House Education and Labor Committee approved a $5.8 billion budget-reconciliation measure.

That measure, passed by a voice vote, would phase in a direct-loan plan over the next several years in an attempt to save $4.3 billion. (See Education Week, May 12, 1993.)

The House Budget Committee will fold the Education and Labor panel's reconciliation plan into a larger bill that includes provisions from other committees. The Budget Committee is likely to vote on the measure this week and send it to the House floor.

As part of the budget resolution approved by Congress earlier this year, the House and Senate Budget committees asked authorizing panels to enact certain savings in programs under their jurisdiction. Included in the instructions was a call to save $4.3 billion in the student-loan program.

While authorization committees enact savings proposals, the House Ways and Means Committee is writing a tax-collection bill that is expected to raise about $300 billion.

Similar action is required in the Senate.

Over all, the budget resolution's five-year blueprint, which is based on proposals offered by the President, is estimated to save nearly $500 billion.

Making A Case

As action on the reconciliation proposal became imminent, supporters and opponents of direct lending stepped up their lobbying efforts.

President Clinton, visiting states in the Midwest last week, used an appearance at Fenton High School in Bensenville, Ill., to tout his direct-loan plan and jab at the financial interests that are lobbying against it, particularly the Student Loan Marketing Association, or Sallie Mae, the federally chartered secondary loan purchaser.

"Last year, lenders made a total profit of $1 billion on student loans. Sallie Mae made $394 million,'' Mr. Clinton said. "And between 1986 and 1991 ... the costs of [Sallie Mae] went down by 21 percent and its profits went up by 172 percent. But you didn't get the benefits of it; someone else did.''

The President also called attention to the heavy lobbying effort Sallie Mae, loan guarantors, and lenders have engaged in since he began discussing a student-loan overhaul.

For their part, proponents of the current loan system continued their efforts to persuade Congress to reform the system, but not replace it.

A coalition of guarantors and secondary markets released a study by a former Congressional Budget Office director that said moving to direct loans could add $70 billion to the national debt in the first five years of program operation.

An aide to Rep. Bart Gordon, D-Tenn., said that if the financial interests could come to a consensus, Mr. Gordon, a loan-program critic and Budget Committee member, would offer a proposal to make a few changes to the loan program while keeping the basic structure intact and saving the required amount.

Several senators from both parties are considering similar action, or at least have questioned the Clinton plan to move to direct lending without testing it in a pilot program.

Muted Debate

In the Education and Labor Committee mark-up, Rep. Bill Goodling, R-Pa., the panel's ranking Republican, said he was concerned about the estimates of savings such a program would produce; the Education Department's ability to administer the program effectively; the support for the switch on college campuses; the plan's imposition of a 5 percent origination fee on student borrowers; and its limits on participation by institutions with high default rates.

"Every time we do a policy move in reconciliation, it backfires,'' he said.

But Rep. William D. Ford, D-Mich., who chairs the committee, said that it is time to end the federal subsidy to the student-loan industry.

"We didn't start out to create a banking system ... we started out to find a way for young people to go to college,'' Mr. Ford said.

Debate was limited, however. Rep. Tom Petri, R-Wis., the ranking minority member on the committee's Postsecondary Education and Training Subcommittee, was alone among Republicans to speak in favor of the bill, and several G.O.P. members dissented in the voice vote. No Democrats spoke against the bill.

The reconciliation proposal also would shift some of the risk for making student loans to the states.

In related action last week, the Senate began hearings on the other key element of Mr. Clinton's financial-aid package, national service.

Some senators, including Nancy Landon Kassebaum, R-Kan., the ranking G.O.P. member on the Labor and Human Resouces Committee, raised objections to the plan, suggesting that its $7.4 billion price tag for full implementation could be better used to boost Pell Grants.

Another hearing on the service bill is planned in the House this week.

Vol. 12, Issue 34

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