WASHINGTON - House Republicans vowed Thursday to eliminate - not just cap - the Clinton administration's student lending program, which they claim is costing the government too much money.
"We've now found that getting rid of direct loans will save the government much more than keeping it around," said House Economic and Educational Opportunities Committee Chairman William F. Goodling. "Capping the program is still going to cost us money ...our best option is to eliminate it."
Rep. Goodling said Republicans will attempt to fold a measure axing the student loan program into the House budget reconciliation bill this fall.
The Pennsylvania Republican released a Congressional Budget Office report Thursday that concludes eliminating the direct loan program would save the federal government $1.5 billion by the year 2002.
The banking industry applauded the CBO's findings.
"We're just tickled pink," said John Dean, special counsel to the Consumer Bankers Association. "This is a substantial shot in the arm for the student loan business, and should encourage banks to improve the system."
The Department of Education began a five-year test in 1993 to see if the government could save money by lending directly to students rather than guaranteeing loans made by private-sector financial institutions.
Under current law, the government's share of the student loan market may not exceed 60% through 1998. But President Clinton has asked Congress to permit the government to make all the student loans.
The President's push to take over the market was fueled in part by another report by the Congressional Budget Office. In 1993, CBO said a fully government-run program would save $4.3 billion over five years.
However, Congress recently changed the budget rules, and now requires the full administrative cost of the government's student loans to be accounted for when financing is made.
Education Under Secretary Marshall Smith referred to the new accounting method as "garbage in, garbage out.
"While their first report applied widely accepted standards for assessing costs over time, CBO is now using politically driven 'scoring' to falsely deflate the obvious savings associated with direct lending.
"Why should bankers and their middlemen continue to receive virtually risk-free, federally guaranteed profits - at a time when there is a bipartisan consensus that the budget should be balanced?"
Still, House Budget Committee Chairman John R. Kasich said Thursday commercial banks and other lenders are better equipped than the government to make and collect student loans.
"We want to use the private sector as much as we can to lend and collect loans because that's the most efficient way to do it," said the Ohio Republican.
Rep. Goodling added that he does not want to eliminate in-school interest subsidies for undergraduate students. He said the savings from cutting direct lending will allow the government to continue paying interest on loans until students graduate.
The CBO report is the latest in a series of blows to the direct lending program. Last week, the House Appropriations Committee approved a spending bill that would reduce the amount of funding available to administer the federal direct loan program.
Both Rep. Goodling and Senate Labor and Human Resources Committee Chairman Nancy Kassebaum, R-Kan., have introduced legislation to cap the direct loan program at 40%.
Mr. Lumetta writes for Medill News Service.