WASHINGTON -- Despite the objections of several panel members, a House subcommitte approved legislation yesterday that would revamp the federal financial aid system for college students and could eliminate the need for tax-exempt student loan bonds.
Republicans on the House Education and Labor Committee's Sub-committee on Postsecondary Education said they woould work to block the proposal when the full committee considers it in the next few weeks. But the plan has strong backing from the committee chairman, Rep. William D. Ford, D-Mich., and many other panel Democrats, education lobbyists said.
The college aid plan is part of a larger bill needed to reauthorize the Higher Education Act of 1965. Congress is expected to complete work on the reauthorization sometime next year. Lobbyists said Senate education lawmakers will probably begin drafting their version of the legislation in the next two weeks, but are not expected to consider the same drastic overhaul for the student loan program that the House subcommittee approved yesterday.
Under the current system, the federal government guarantees loans made to students by commercial banks, which in turn sell the loans to state higher education authorities. The authorities often finance those purchases with tax-exempt bonds, and some operate bond-financed loan programs of their own to supplement the federal system.
The bill approved by the subcommittee would scrap that system and require the federal government to give seed money to colleges to set up revolving loan funds for student aid. State education officials have said such a program would obviate the need for their student loan agencies, and in turn, for the issuance of student loan bonds.
The program would be phased in over a two-year period beginning July 1, 1994, when 500 colleges would be selected from around the country to participate in the program. The following year another 1,000 colleges would begin participating, and on July 1, 1996, all other eligible colleges would be brought into the program.
The first signs that big changes to the student loan program would be considered this year came not from Capitol Hill, but from the White House. In January, various news reports said administration officials were considering including a plan for direct loans in President Bush's annual budget proposal in February. But that plan never materialized.
The Bush administration, in fact, now appears to be opposed to the direct-loan approach. Education Secretary Lamar Alexander has told the committee the plan would increase the federal deficit, and increase the government's exposure in the area of student loans.
Supporters, however, have said the plan would save the federal government more than $1 billion a year, and would simplify a system that has become overly complex and involves too many middlemen that profit from the lending process.