Capital Briefs: Senate Panel Backs Cut in Student Loan Rate

The Senate Labor and Human Resources Committee unanimously approved legislation Wednesday that would cut the rate lenders may charge on government-guaranteed student loans.

The plan, included as part of a spending bill for higher education, is identical with one passed by the House Education Committee March 19. The legislation would cut the five-year average interest rate on these loans to 7%, from 7.8%. The reduction was already scheduled to take effect July 1 under a provision of a 1993 law.

To appease lenders, however, the bills would supplement interest payments so the effective rate banks receive would be 7.5%.

Bankers oppose the compromise, arguing that rates would still be too low. Some institutions have even threatened to stop making government- guaranteed loans. The Clinton administration also opposes the compromise but not because it is too stingy. Treasury Department officials contend the $300 million annual subsidy for banks is unnecessary.