WASHINGTON - Congress is expected to take a final vote later this week on a plan that would introduce a system of direct student loans and require Congress to evaluate the program in four years before it could eliminate the current system and the need for tax-exempt student loan bonds.

The final version of the bill, agreed to by House and Senate conferees late last week, is closer to the Senate's version. It would permit direct loans made by colleges to represent up to 5% of total student loan volume in the first year after enactment, 40% in the second, 50% in the third and fourth years, and 60% in the fifth.

Lobbyists said the measure represents a partial victory for proponents of the current system because it falls short of President Clinton's original plan for moving automatically to direct lending after four years.

"On the bright side, this preserves a role for the private sector and establishes a competition" between private lenders and a government-run direct loan program, said Fritz Elmendorf, a spokesman for the Consumer Bankers Association.

"We're still predicting that time will show the private sector will do it better," Elmendorf said.

Current law requires the federal government to guarantee loans made to students by banks, which in turn sell the loans to higher education authorities. The authorities often finance their purchases with tax-exempt student loan bonds.

Under direct lending, the federal government would provide seed money to colleges to set up revolving loan funds for student aid. Education and banking lobbyists have warned that such a system would end the need for the state authorities and, in turn, for tax-exempt student loan bonds.

Clinton's original proposal, which was passed by the House, would have eliminated the Guaranteed Student Loan program by 1998 and phased in direct lending for 100% of all student loan volume by that year.

Last month, the Senate approved legislation that would prevent direct loans from making up more than 50% of total loan volume at the end of that period. Several senators, leery about moving automatically to direct lending, had fought for the ceiling because it would force Congress to study the new program and decide whether to extend it to all student loans or stick with the current system.

The final version thus more closely follows the Senate bill, although the annual levels of direct loans after the first year are slightly higher than under the Senate bill.

Sen. Nancy Kassebaum, R-Kan., one of the senators who favored the 50% ceiling, said she was disappointed the levels had been raised. Still, she was pleased that the Senate had prevailed with its position on forcing Congress to evaluate the program after four years. "I think by then we're going to know" whether direct lending works, she said.

As the conference dragged on last week, the House conferees' position appeared to be weakened by a letter signed by a majority of House members, who said they did not support the House bill. The letter urged the House conferees to accept the Senate version of the measure.

The bill approved by the conferees will be rolled into the larger budget and tax package, on which Congress is expected to take a final vote later this week.

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