WASHINGTON - Congress can expect to save only half as much as expected by cutting banks out of student lending, according to the Congressional Budget Office.
In cost estimates for its proposal for direct student lending by the government, the Clinton administration used an accounting technique that did not incorporate the administrative costs of collecting payments, said Robert D. Reischauer, director of the Congressional Budget Office.
The expected savings from direct lending "fall to $2.08 billion [from the projected $4.27 billion] when federal administrative expenses are estimated on a net present-value basis," Mr. Reischauer added in a letter to Sen. Claiborne Pell, D-R.I., chairman of the Senate Labor subcommittee on education.
"It's a very significant letter," said Joseph Belew, president of the Consumer Bankers Association, which has opposed direct lending. "It's concrete evidence that the savings estimates being used are largely illusory."
An alternative proposal by the Consumer Bankers and others, which includes a reduction in the special allowance paid to banks, "will save $4 billion, but it won't leave a lot of people in the program," said Mr. Belew. "At $2 billion, a lot more lenders would be able to stay in the program."
Included in Budget Bill
The President's plan to replace the current system of government-guaranteed, private-sector loans sailed through the House Education and Labor Committee and was included in the massive budget-reconciliation bill that passed the House last week by a narrow margin.
At a hearing last week, Sen. Pell expressed skepticism about the wisdom of creating "another massive federal bureaucracy."
The Senate Labor and Human Resources Committee, which has jurisdiction over student lending, is expected to vote on the Clinton plan next week.