Lawmakers stripped a cap on the government's share of the student loan market from the 1996 budget bill passed by Congress Thursday.
This budget bill was seen as the banking industry's best shot at limiting direct lending to students by the government. The House version of the bill would have capped direct student loans at 40% of the $21 billion market - roughly as things stand today.
"The 40% cap was a reasonable compromise," said Joe Belew, president of the Consumer Bankers Association. "We are extremely disappointed that congressional budget conferees backed down in the face of a veto threat."
President Clinton has championed direct lending since he took office in 1993. That summer, Congress passed legislation laying out a five-year plan for government student lending, rising from 5% of the market in the 1994-95 school year to 60% in 1998-99.
Fritz Elmendorf, a spokesman for the Consumer Bankers, said the future of the program depends largely on who is elected as president this fall.
"If Clinton is reelected, the scenario . . . is very bleak," he said. "If (Senate Majority Leader Bob) Dole is elected, it would resurrect hope" that direct student lending can be curbed.