congressional budget negotiators agreed to limit the federal government's share of the student loan market to 10%. Under a Clinton administration initiative, the government was scheduled to claim 40% of the market this year and an additional 20 percentage points by 1998. Now, the Department of Education may be forced to begin selling loans back to the private sector. "This is a very big deal for anyone in the student lending business," said Joe Belew, president of the Consumer Bankers Association. The 10% figure represents a compromise between the zero market share proposed for the government in a House-passed bill and the 20% share recommended by the Senate in its version of the legislation. Although splitting the difference is a time honored method of settling such disputes, bank lobbyists were afraid that in this case Congress would actually settle on a higher number in an effort to avoid a presidential veto. The student lending bill was included in a giant budget bill that the president is widely expected to reject. Although it is a minor item compared to Medicare, for example, it is a high-profile issue at the White House. The direct loan program is one of President Clinton's pet projects. It was given a prominent role in the 1992 presidential race and was highlighted by the administration in the final weeks of the 1994 congressional campaign. Because the bill still faces a presidential veto, bankers will likely find themselves lobbying all over again to ensure that the measure is included in subsequent versions of the budget package. Although industry figures are happy that the government's share of the loan market is being limited, the budget package does include some pain for private sector lenders. To raise money that could be used to balance the budget, legislators agreed to increase the fee private lenders pay when they originate government-guaranteed student loans. Currently lenders pay 50 cents for each $100 on loans. That would rise to 80 cents under the budget agreement. However, that's still better than the $1 per $100 that Congress was considering. In addition, the bill would require lenders to share more of the risk. Now, lenders are at risk for 2% of the loan value in the case of default. That would rise to 5% under the bill. Mr. Belew said his group can live with the higher fees. "The fees are going up, but basically held the line," he said. With federal offices closed Friday in observation of Veterans Day it was not possible to obtain comment from the Department of Education, which has vigorously opposed efforts to limit the direct lending program.
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