Despite opposition from bankers and the Clinton administration, a House panel is expected to approve legislation today that would cut the rates lenders may charge students getting government- guaranteed loans.

The House Education Committee's proposal would cut the five-year average interest rate to 7% from 7.8% as scheduled on July 1. But to partially compensate lenders, the government would supplement interest payments so lenders receive a rate of 7.5%.

"This will ensure that loans remain available and that students receive the lowest rate in 17 years," said Rep. Howard "Buck" McKeon, chairman of the panel's postsecondary education subcommittee.

The compromise is not sitting well with bankers who complain the committee's plan would still force interest rates too low.

"We need higher margins," said Joe Belew, president of the Consumer Bankers Association. "These loans are very expensive to service because they require a lot of default prevention and collection activities."

The Clinton administration has also criticized the plan, arguing that the $300 million to supplement rates is unnecessary.

"The administration continues to believe that students can be protected without taxpayers subsidizing the record profits of lenders," said Marshall S. Smith, acting deputy education secretary.

Despite the administration's opposition, committee Democrats will back the proposal, said Rep. Dale Kildee, D-Mich., the ranking minority member on the postsecondary education subcommittee.

"While this plan may not cut rates as far as the administration would do, we believe it will keep a sufficient number of lenders in the program," he said.

Education Committee Chairman William Goodling said Congress must act quickly to make sure loans are available for students entering college this fall.

Despite the urgency, the Senate has been slow to act. Senate Budget Committee Chairman Pete Domenici, R-N.M., as part of a nonbinding budget resolution his panel is expected to approve today, is urging Congress to set rates high enough to keep lenders in the program. His recommendation, however, is not expected to include any specific interest rate level.

The Senate Labor and Human Resources Committee will address the dispute in an education spending bill in late April. But staffers for that panel said no decisions have been made on the student loan dispute.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.