WASHINGTON - The federal government would end its two-year experiment in direct student lending under a bill approved Thursday by the House Committee on Economic and Educational Opportunities.
As part of an effort to save $10.2 billion over seven years, the House panel would turn all student lending over to the private sector. That puts the House committee in conflict with its Senate counterpart. The Senate Labor and Human Resources Committee voted Tuesday to continue a federal presence in student lending, but limiting the government's share of the market to 20%.
By eliminating the direct student loan program, the government can save $800 million in administrative expenses and $400 million in lending costs, according to estimates by the Congressional Budget Office. Both student loan proposals are included in budget bills aimed at balancing the federal budget within seven years.
With other savings, the government will be able to avoid tightening eligibility standards, while continuing subsidies that permit students to defer interest payments while in school, said Rep. Bill Goodling, R-Pa., chairman of the House panel.
"I, for one, believe that we have reduced costs to the maximum extent possible while still assuring access to loans for all students," he said.
Both panels have suggested decreasing the portion of the loan guaranteed by the federal government. The House bill would reduce the guarantee from 98 cents on the dollar to 96 cents, while the Senate's bill cuts the coverage to 95 cents.
Both bills double the origination fee lenders must pay from .5% to 1% and levies a .2% transfer fee on the outstanding principal when a lender buys a loan from another lender.
Unlike the Senate bill, the House bill does not contain an .85% fee on schools.