WASHINGTON -- The Senate's education panel appeared divided yesterday over whether to approve President Clinton's plan for scrapping the federal Guaranteed Student Loan Program, which would end the need for tax-exempt student loan bonds.
During a hearing on the proposal, only four members of the 17-member Senate Labor and Human Resources Committee said they want to move ahead immediately with the plan, which would replace the current student loan system with one in which colleges would make and service the loans.
Four other members, including a leading Democrat on the committee, Sen. Claiborne Pell, D-R.I., said Congress should stick with a measure enacted last year that would test the direct loan concept over the next four years but leave the current system intact. Three panel members did not appear to take a position on Clinton's plan, and another six were not present.
The education panel is considering Clinton's plan as a way to cut costs among the programs under its jurisdiction. Under rules established by the two congressional budget committees, the education committee must approve legislation by June 18 that would propose $4.5 billion in savings.
The committee's chairman, Sen. Edward M. Kennedy, D-Mass., acknowledged there "is a diversity in approach" among panel members, but said he wants to move forward with the direct lending plan, calling it "an idea whose time has come."
Under the President's proposal, the federal government would provide seed money to colleges to set up revolving loan funds for student aid. The new system would be phased in over four years, beginning in the 1994-95 academic year. All loans would be underwritten by the federal government.
Under current law, 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 purchase of the loans with tax-exempt bonds. Education lobbyists say that switching to a direct loan program will eliminate the need for the state authorities and, in turn, for issuance of student loan bonds.
The four panel members who object to moving ahead immediately with direct lending said they had two major concerns about the President's proposal.
For one, implementing the program would cause "creation of another pretty massive government bureaucracy," Pell said, and he questioned "the ability of the Department [of Education] and many colleges to manage a program of this magnitude."
Kennedy acknowledged that the department has not had a good track record in managing existing student loan programs. "It's been an absolute, categorical disaster" in recent years, he said. But he said he expected that the department would improve under the new education secretary, Richard Riley.
Opponents of the proposal also said they do not believe direct lending would cut federal education costs as much as government studies have estimated. The General Accounting Office claims a direct loan program could save the federal government more than $6 billion over five years.
Sen. James Jeffords, R-Vt., said that even though he supports the concept of direct lending, he is "skeptical of the savings." Switching to a direct loan program "is not a change we should make lightly," he said.
During the hearing, Pell suggested a possible compromise in which the direct loan program would begin as scheduled in 1994. But Congress would add a "stopping point" during the phase-in period so law-makers could assess the program and decide whether to continue it.
Deputy Education Secretary Madeleine M. Kunin, who was testifying on behalf of the administration, said she "would like to give some additional thought to that idea."
Kunin also pledged that if the department found serious problems with the program during the phase-in period, "we will pause and ask for greater time" to fully implement direct lending. She said that while the legislation calls for the department to report to Congress on the program's progress annually, "we would be happy to report to you monthly."