Opponents query savings from Clinton loan proposal Bank lobbyists stage aggressive campaign

June 02, 1993|By New York Times News Service &&TC

WASHINGTON -- President Clinton's proposal to change the way college students get education loans has bogged down in the face of a bank lobbying blitz and criticism of the White House's assumption that the government can administer loans more efficiently than private lenders.

The administration maintains that it can save students and the government billions of dollars a year in interest and other lending costs by replacing "middlemen" such as the Student Loan Marketing Association, or Sallie Mae, and making the loans itself through the Department of Education.

The House appears ready to go along with the plan, but the Senate is sharply divided.

Opposition to the measure is forcing the administration to negotiate quietly with a number of swing senators, and a compromise may arise around a gradual transition to a direct-lending system that could be reversed if savings do not materialize.

The debate so far has focused on bank profits, and the amount of paperwork and interest payments for millions of students. But some congressional Democrats say the legislative battle over student loans is also emerging as a test case for the larger question of whether Congress will go along with other administration proposals to enlarge the role of government.

Congressional resistance to the president's plan is largely Republican but includes some Democrats.

Under the current system, the government guarantees student loans. It also pays interest to the lending banks, at a rate 3.1 percentage points above the rate of three-month Treasury bills, while a borrowing student is in school. After the student graduates, the bank customarily sells the loan to secondary lenders such as Sallie Mae, which collect the payments of graduates and sell loan-backed bonds to investors.

Mr. Clinton's proposal would eliminate the banks and the secondary markets from the process.

Congressional proponents of the direct-loan approach have tried to discredit the unusually intense lobbying efforts by Sallie Mae and other lending organizations as an unseemly effort to protect wasteful subsidies that guarantee profits and corporate salaries at the expense of students.

Typical of the aggressive lobbying campaign was an advertisement published recently in Cincinnati newspapers, sponsored by an organization called Ohio Students for Loan Reform and titled "Leave Us a Loan."

Cut-out cards addressed to Ohio's two U.S. senators John Glenn and Howard M. Metzenbaum, urged, "Don't scrap my financial aid for an untested, government-run direct lending program."

The advertisement was paid for by the Student Loan Funding Corp,, a company that markets student loans.

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