WASHINGTON - President Clinton's plan to eliminate the federal Guaranteed Student Loan program, which would end the need for tax-exempt student loan bonds, may not have the votes to pass in the Senate, an education lawmaker said yesterday.
"I think we're going to have a close vote" in the Senate Labor and Human Resources Committee and on the Senate floor on Clinton's plan to switch to a system of direct loans made and serviced by colleges, Sen. Paul Simon, D-Ill., told reporters. "There's likely to be a very real battle on this."
Simon, who has pushed for direct lending for years, spoke during a news conference he and Rep. Thomas E. Petri, R-Wis., called to criticize the lobbying tactics of the opponents of direct lending. The opponents include state education authorities, banks, and the Student Loan Marketing Association.
"It is absolutely outrageous that Sallie Mae, guarantee agencies, and other private parties who are profiting immensely from the current program are duping students into supporting their profits against the students' own interests." Petri said.
Simon said the vote will be close in the Senate partly because the opponents of direct lending "really have been going into action" against the proposal.
The two lawmakers and deputy education secretary Madeleine Kunin accused Sallie Mae of frightening students into believing that college tuition would increase and federal aid to college students would eventually evaporate if the present system were replaced by direct lending.
"There really is a very deliberate effort to raise uncalled-for fears that are not based on the facts. Kunin said.
Under the President's plan, the federal government would provide seed money to colleges to set up revolving loan funds for student aid. The new system would be phased in over four years, beginning in the 1994-95 academic year. All loans would be underwritten by the federal government.
Under current law, the federal government guarantees loans made to students by commercial banks, which in turn sell the loans to state higher education authorities. The authorities often finance those purchases with tax-exempt bonds. Education lobbyists say that switching to a direct loan program will eliminate the need for the state authorities and, in turn, for issuance of student loan bonds.
Simon criticized state student loan bond issuers for spending huge amounts of money to hire high-powered Washington law firms to lobby on their behalf.
Citing one example, Simon said the New England Education Loan Marketing Corp. hired Patton, Boggs & Blow - one of the best-known lobbying firms in the capital. In addition, the Student Loan Funding Corp. of Ohio was billed $12,331 by the Washington firm of Clohan & Dean for lobbying against direct lending in the first quarter of 1993.
But opponents of direct lending said they have legitimate concerns about the President's plan. Debate over the proposal "has been conducted in a campaign of personal attacks attempting to discredit anyone who is raising questions about it," said John Dean, a partner with Clohan & Dean, which is also counsel to the Consumer Bankers Association.
Dean said banks "are unhappy about being described as unnecessary middlemen, and they genuinely believe this is a bad proposal," in part because they are not confident the Department of Education will be able to administer the program.
Mark Weadick, senior vice president of the Ohio authority, said the state agencies are all nonprofit entities whose primary mission is to foster access to higher education and who honestly believe the current system is more efficient.
In the House, Clinton's direct lending plan is part of a comprehensive budget and tax package that is scheduled for a vote tomorrow.
The House Education and Labor Committee approved the plan earlier this month because it had been charged by the House Budget Committee to find $4.5 billion in savings among the programs under its jurisdiction. The General Accounting Office has estimated that switching to direct loans would save the federal government $6 billion over five years.
The Senate Labor and Human Resources Committee has also been charged with finding $4.5 billion in savings among the federal education programs. Simon's remarks today indicated that it is unclear whether the panel will propose to save the money by switching to direct loans or try to cut costs within the current program. Under rules set by the Senate Budget Committee, the panel must act by June 18.
Last year, Congress approved a pilot program that is supposed to test the direct loan concept over a five-year period beginning next year. Earlier this year. Sen. Claiborne Pell, D-R.I., the labor and human resources panel chairman, said he was uncomfortable with the idea of abandoning the pilot program and moving immediately into a direct loan program.