Senate Compromise Advances, but Banks Are Dissatisfied

WASHINGTON -- The banking industry gained ground in its battle with the Clinton administration over student lending, but probably not enough to save the private-sector program.

Key members of the Senate Labor and Human Resources Committee signed off Wednesday on a compromise that would authorized a pilot-program test of the administration's plan for the government to lend directly to college students.

The compromise measure, part of the Senate's deficit reduction package, was put off for a committee vote today..

Evaluation Planned

The Clinton proposal, essentially approved by the House, would push banks entirely out of the student lending program.

The Senate committee's plan, negotiated primarily by Chairman Edward M. Kennedy, D-Mass., and Sen. Claiborne Pell, D-R.I., would set up a test and a presidential commission to evaluate it and report by Jan. 1, 1997.

As the Senate deal was being negotiated, financial institutions' lobbyists had hoped that the government share of the market in the test would be limited to 30%. But the plan unveiled Wednesday would require the government to have at least half the market in 1997.

No Limit on Government Share

Furthermore, there would be no top limit. "It could go up to 100% before they even see the report" from the presidential commission, said Philip Corwin, a lobbyist for the American Bankers Association.

In addition, Mr. Corwin and other lobbyist said the presidential commission would likely be stacked against them.

The panel would not include lenders, and would be appointed by the President, who is a strong advocate of direct lending. "We expect the commission to be a rubber stamp," Mr. Corwin said.

But the Senate compromise is a significant departure from the approach the House took last month. The House bill proposes moving to a system of direct lending in four years, with no provision for evaluation.

|Still Terrible'

"It's better than it was, but it's still terrible," said Joseph Belew, president of the Consumer Bankers Association.

The Senate package also would trim the fees banks receive as the program is being phased out. For example, the interest banks would earn on such loans while the student is in school would be pegged at 2.5 percentage points over the rate for Treasury bills, down from 3.1 percentage points.

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