The Senate Finance Committee approved legislation Wednesday that would expand education savings accounts, but the Clinton administration threatened to repeat last year's veto of the measure.

The bill, adopted on a 12-to-8 vote, would let parents contribute $2,000 annually to tax-free accounts for their children's tuition, books, and other expenses at public or private schools. (The current limit, $500, would be restored after four years.) Eligible spending would expand beyond college expenses to elementary and secondary school costs through 2003.

The legislation also would eliminate the 60-month limit on deductibility of student-loan interest by low- and moderate-income borrowers and allow the Federal Home Loan banks to guarantee a maximum of $500 million in school construction bonds annually.

But Treasury Secretary Robert E. Rubin and Education Secretary Richard W. Riley said they strongly oppose the legislation because it would favor the wealthy and divert tax money that would be better spent on bonds for rebuilding public schools.

"We again would recommend to the President that he veto the bill," the secretaries wrote in a May 18 letter to committee Chairman William V. Roth Jr. "The current bill disproportionately benefits the most affluent families and provides little benefit to lower- and middle-income families."

Jacob J. Lew, director of the Office of Management and Budget, stumped Wednesday for alternatives such as the President's proposed USA Accounts that would be funded by the budget surplus. Under that plan, the federal government would provide seed money for these retirement accounts in the form of tax credits and would match contributions by consumers.

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