Clinton Administration Digs In Heels on Direct-Loan Plan

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WASHINGTON--President Clinton's direct-loan proposal appears to face significant opposition in the Senate, as both Democrats and Republicans sought last week to nudge Administration officials toward compromise.

"It's obviously going to be a battle; we were never under the impression that it wouldn't be,'' Deputy Secretary of Education Madeleine M. Kunin said at a luncheon meeting with reporters following her testimony before the Senate Labor and Human Resources Committee.

"This is a high-stakes question,'' she added.

At the hearing, committee members from both parties suggested that the proposed dismantling of the current student-loan system be slowed down.

The Administration's plan calls for gradually phasing out the current program, in which students receive loans from private sources that are guaranteed by the federal government, in favor of a system in which the government would generate capital to make loans directly to students via higher-education institutions or "alternative originators.''

Ms. Kunin said that slowing down the transition, which the Administration hopes to accomplish in four years, would make it impossible to realize the $4.3 billion in savings proponents project over the next five years, and would discourage institutions from participating. Fully studying a pilot project could take 10 years, she added.

If direct lending is not working the way the White House expects it to, Ms. Kunin said, "we'll reconsider, slow it down, change it.''

At the luncheon meeting, Ms. Kunin added: "We're open to looking at any proposals. But we think the proposal we put forth is workable.''

Nonetheless, while the direct-lending plan apparently has sufficient support in the House--where lawmakers late last week were considering it as a part of the budget reconciliation bill--its prospects are more tenuous in the Senate. (See related story, this page.)

A Senate Showdown?

Although he has not said he would vote against direct-lending legislation, Sen. Claiborne Pell, the Democrat from Rhode Island who chairs the Senate Subcommittee on Education, Arts, and Humanities, said he has serious reservations about the proposal.

And Sen. Nancy Landon Kassebaum, R-Kan., the ranking Republican on the Labor and Human Resources Committee, has emerged as an outspoken opponent.

However, the comments of such senators as Christopher J. Dodd, D-Conn., and James M. Jeffords, R-Vt., may be more indicative of the Senate's mood.

At the hearing last week, Mr. Dodd recalled his reservations about the measure when it was raised during the reauthorization of the Higher Education Act last year, and said he still has some "personal concerns'' about the change.

A lot of details have not yet been explained, he said, and "the technicalities are important to this debate.''

"But this is a new day,'' he said, referring to the change in administrations--and hinting that his position on direct lending might change as well.

Mr. Jeffords, the ranking Republican on Mr. Pell's subcommittee, told Ms. Kunin that he supports direct lending but that the transition from the old system should proceed at a slower pace, both in Congress and in practice.

He, as well as Ms. Kassebaum, suggested that the Education Department expand the size of the pilot program authorized by the H.E.A. and meet budget mandates by enacting some savings in the current program by reducing subsidies to lenders.

"We might get a win-win situation and resolve the problems we might have with the [new direct-lending] program,'' Senator Jeffords said.

Sen. Paul Simon, D-Ill., perhaps the Senate's leading direct-lending advocate, suggested that the department proceed with full implementation of the new program and also enact the savings highlighted by Sens. Kassebaum and Jeffords.

But Ms. Kunin said Administration officials fear that private-sector participants in the current program might pull out during the transition if their subsidies are reduced.

The Senate panel plans to vote on the direct-lending plan next week.

Vol. 12, Issue 36

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