WASHINGTON - Key Congressional Republicans are mounting an effort to roll back President Clinton's plan to shift student lending from banks to the government.
Rep. William F. Goodling, chairman of the House Economic and Educational Opportunities Committee, plans to introduce legislation to limit the federal government's share of the market to 40%.
That's well below the 60% limit Congress approved at the behest of the White House. An aide to the Pennsylvania Republican said the 60% level is simply too high for what is supposed to be a pilot program.
But the administration argued that it is offering a superior, easy-to- use service to schools and students.
"Private lenders have had the last 25 years to do what we have done," said Leo Kornfeld, senior adviser to Education Secretary Richard W. Riley. "What we've done is make the program simple - we've standardized and simplified it.
Industry sources said the Republican-sponsored measure, if enacted, could enable the banking industry to maintain a foothold in the student lending market.
"For banks, this will mean that the inevitability of the direct loan program as promised by the Clinton Administration is not necessarily so," said John Dean, special counsel to the Consumer Bankers Association. "It will encourage banks to continue investment of money and personnel."
The simple fact that Congress is raising the issue again gives the industry more leverage with the schools that help determine where students obtain loans, he said.
"Now we are able to say to schools that there is a very substantial chance of Congress maintaining dual programs for at least the next few years, so give us a chance," he said.
The 1994 law directed the Department of Education to conduct a five-year test to determine if the government could manage the student loan program more cheaply than the private sector.
However, the law allows the Department of Education to take over up to 60% of the market by 1998. Bankers feared that if the government gained that large a share of the market, it would eventually squeeze out most of the remaining private-sector lenders.
The government has a 5% market share limit for the current year, but it can go to 40% after July and to 50% a year later. Rep. Goodling, one of the administration's principal opponents in the last Congress, said those market share figures are much too large for a test program.
"He is concerned that this hasn't been properly tested, and he doesn't want to see a move too quickly to direct loans," said one of his aides.
The Goodling bill will have to clear a substantial hurdle before passage. Tightening the cap on the direct loan program will increase the federal budget, at least on paper, since the administration's estimates assume that it is cheaper for the government to run the program.
"By capping (the government market share), you will have an additional cost attached to program - one that the budget has not been scored for," said a congressional source. "To that extent, you have to find savings to offset it."
Legislative sources said Senate Labor and Human Resources Committee Chairman Nancy Kassebaum, R-Kan., is considering similar legislation, but may wait to examine Rep. Goodling's bill before introducing a measure of her own.