College Fees Proposed To Cut Cost Of Lending Programs

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Sen. Nancy Landon Kassebaum, R-Kan., the chairwoman of the Senate Committee on Labor and Human Resources, revealed a proposal last week to charge colleges $4.4 billion in new fees as part of a seven-year plan to save $10.1 billion in federal student-loan programs.

Democrats and moderate Republicans said they will oppose the plan, which would also increase fees charged to private lenders participating in the guaranteed-loan program and reduce the amount of loan interest now subsidized by the federal government.

Ms. Kassebaum planned to introduce her proposal formally at a Sept. 22 committee meeting.

"The unhappy reality is that achieving a balanced federal budget over seven years requires painful choices," she said in a written statement.

The 1996 budget resolution approved by Congress last spring instructs her panel--and its House counterpart--to find $10.1 billion in student-loan savings as part of the GOP pledge to balance the federal budget by 2002. Those plans will be incorporated into budget-reconciliation bills, which will carry a variety of proposals to save money by altering federal entitlement programs.

The House Committee on Economic and Educational Opportunities is also expected to ACT on its plan this week. A draft proposal released by its chairman, Rep. Bill Goodling, R-Pa., calls for eliminating the direct-lending program and government subsidies for the interest paid on student loans during the six-month grace period after borrowers leave school. (See Education Week, Sept. 20, 1995.)

Direct Lending

Ms. Kassebaum's plan would reduce the interest-free grace period to four months, saving $855 million over seven years.

It would also net $1.3 billion by capping the direct-lending program to 30 percent of new loans and cutting $700 million from the program's administrative budget over seven years, rather than eliminating the initiative, which the Clinton administration contends will save money by cutting out the profits of private lenders.

Proposals to cut interest subsidies have stirred protests from college students, and strong opposition also surfaced last week to the proposed college fee, which would equal 2 percent of the federal loans received by a school's students.

"Enough is enough," said Sen. Claiborne Pell, D-R.I., and the ranking Democrat on the Subcommittee on Education, Arts, and Humanities. "No more cuts should be made in student-aid programs, regardless of reconciliation instructions."

David L. Warren, the president of the National Association of Independent Colleges and Universities, said the plan would discriminate against colleges with high numbers of needy students. In the 1993-94 academic year, he said, the fee to Kansas State University would have been $827,266. The fee to Lewis & Clark College, a small private school in Portland, Ore., would have been about $300,000.

"I think it's a badly flawed proposal," Mr. Warren said, adding that the fees, which could not be passed on to students, could be regarded as a tax on colleges, which enjoy ~tax exemptions.

Budgetary Deadlines

Ms. Kassebaum's plan also calls for saving $3.6 billion by lowering the portion of defaulted loans repaid by the government to private lenders from 98 cents to 95 cents on the dollar, and by increasing the lender fee for each new loan from 0.5 percent to 1 percent.

Opponents said they would try to amend the plan, either in committee or on the Senate floor. Once reconciliation plans are approved by the House and Senate, a compromise must be hammered out by a conference committee. Lawmakers do not expect to complete this task until early November.

It is also unlikely that Congress will complete the 13 spending bills that fund the federal government by Oct. 1, when fiscal 1996 begins.

The Senate is not expected to address until at least Sept. 28 the highly contentious bill recently approved by appropriators for financing the departments of Labor, Health and Human Services, and Education. And a House-Senate conference must also work out differences between this bill and a companion House bill.

Negotiations are under way between administration officials and congressional leaders on a stopgap spending plan, called a continuing resolution, to keep the government running while deliberations continue on the legislation.

Vol. 15, Issue 04

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