Senate panel OKs plan for student loan reform

June 11, 1993|By New York Times News Service

WASHINGTON -- The Senate Labor and Human Resources Committee approved yesterday a modified version of President Clinton's proposal to put the federal government in the business of lending money directly to college students.

The plan, which is now almost certain to be enacted in some form, is intended to cut costs both to students and to the government, which now acts as a guarantor of student loans made by private financial institutions.

The most immediate saving would be to students, who now pay fees of as much as $80 for every $1,000 borrowed. Under the bill, those fees would be cut in half, whether the loan is coming from the government or from a bank.

The president had proposed that private lenders be eliminated entirely from the government's student loan program. But the bill approved by the Senate committee yesterday was a compromise that would cap government lending at 50 percent of total student-loan volume. The government lending would be introduced gradually, so that the 50 percent cap would not be reached until the 1997-1998 academic year.

The committee's chairman, Sen. Edward M. Kennedy of Massachusetts, who has advocated such direct government loans since 1978, said: "Direct lending is the most far-reaching reform of federal aid to higher education in a quarter-century."

One novel feature of the bill is that students could choose to satisfy government loans by paying the Internal Revenue Service a fixed percentage of their income for 20 years, or until the loan is repaid, whichever comes first. Thus, not every loan would necessarily have to be fully repaid.

This option would make it easier for graduates who take low-paying public service jobs to satisfy their loans. The portion of their income that they would pay to the IRS is so far undetermined but would probably be between 3 percent and 5 percent.

The plan was approved by a vote of 15 to 2, with the support of all seven Republicans on the committee. The two Democrats who voted against it, Sens. Tom Harkin of Iowa and Paul Wellstone of Minnesota, complained that it did not go far enough because it would not eliminate private educational lending.

The range of support that the compromise bill received in committee virtually assures its passage by the full Senate.

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