House Aye Due Wednesday for Cheaper Student Loans

The House is expected to approve legislation Wednesday that would cut the rate on government-guaranteed student loans.

The measure, included in a spending bill for higher education programs, would reduce the rate students pay by 80 basis points on July 1. The rate lenders earn would drop only 30 basis points, however, thanks to a subsidy from the federal government.

House leaders continue to search for budget cuts to pay for the subsidy, whose cost it put at $1.1 billion over five years. The Senate is expected to vote on a similar plan this week, but the day has not been set.

To increase chances of quick enactment for the student loan fix, congressional leaders have included it in separate legislation to provide additional spending for the government's fiscal 1998 budget. The Senate and House are scheduled to vote on that legislation Thursday.

Bank trade groups argue that the plan could make some student loans unprofitable, but say that it is the best deal the industry can get.

"The cut will affect lenders' ability to offer full customer service (and) invest in computer automation," said a Consumer Bankers Association spokesman. Also it "could possibly reduce the number of students banks are willing to assist," he said.

However, the Clinton administration opposes the subsidy, and wants banks to absorb the full 80 basis point cut. If banks refuse to participate in the program, Education Secretary Richard W. Riley has said, the federal government, Sallie Mae, and state higher education assistance agencies should provide emergency funds.

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