Education agency defends direct student loans

June 29, 1995|By David Folkenflik | David Folkenflik,Sun Staff Writer

WASHINGTON -- U.S. Department of Education officials yesterday launched a spirited defense of the direct student loans program, saying that the fledgling initiative has saved students countless headaches and taxpayers hundreds of millions of dollars.

At a press briefing, Deputy Secretary Madeline Kunin said Republican efforts to block planned growth of the program amounted to corporate welfare for "special interests" -- the banks and private guarantee agencies that make money off student dollars.

"This is a program that does everything that the public wants it to do," Ms. Kunin said. "To stop this program, or to limit it in some way, just goes against all common sense."

While President Clinton has called for the program to be accelerated to include all American campuses this year, the debate in Congress is a party affair, between Republican moderates seeking to curb direct lending and conservatives hoping to kill it altogether.

While she said she had not given up hope that the president's accelerated timetable would be adopted, Ms. Kunin said a sensible compromise would allow the program to grow at its scheduled pace -- 40 percent of all campuses for the year starting July 1, and 100 percent for the year after.

Most students still borrow money to pay for college the old way, which involves more than 7,500 banks and other private lenders, 41 guarantee agencies and 90 secondary market participants, according to department figures. Only 5 percent -- a little more than 100 campuses -- took part in the pilot direct-loan project that began last summer.

President Clinton has argued that taxpayers will save several billion dollars by eliminating the middle men -- and their fees -- from the process. Besides the banks, there are other semi-private companies that guarantee the loans and buy and sell them to investors. While many of these organizations are not for profit, some of their payrolls and plush facilities have come under close scrutiny in recent years.

Conservative Republicans have seized on the direct-lending program, which converts the handling student loans from lending agencies to the Education Department, as a classic example of big government. Possible savings will be eaten up, these critics said, by inefficient bureaucrats looking to expand their agencies.

The Education Department also released yesterday a privately administered survey of colleges participating in the first year of the program that shows more than 90 percent of those campuses are happy with their efforts. The survey was conducted by Macro International, a research company from Calverton.

In capping off her account of customer satisfaction, Ms. Kunin noted that the University of Maryland College Park (UMCP) had reversed its decision not to join the program. College Park officials announced in March that it would not participate. But a month later, the university decided to put 3 percent of its students under the program.

William D. Leith, UMCP's director of financial aid, acknowledged the move did not constitute a wholehearted endorsement of direct lending. But he said it would allow the school to include all students in the program later if Congress limits the participation of campuses to those already involved by this summer.

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