WASHINGTON - Sen. Dan Coats has introduced a bill that would ax the administration's direct student loan program.

The move last Friday by the influential Indiana Republican gives banks much-needed support in their fight against the government's plan to take over the student loan business from 7,000 private lenders.

"The administration's plan to turn the Department of Education into one of the nation's largest consumer banks is a poor idea which drives to expand government," Sen. Coats said.

"If this plan succeeds ... Americans will have nowhere else to turn for student loans. They will have to hope that a bureaucracy in Washington can meet their needs."

Although House Republicans have been aggressive in opposing direct lending, the Senate has been quiet on the issue. Bankers now believe the bill will give them the support they need to energize lobbying efforts in the Senate.

"This is a major step, because we haven't seen a lot of support so far in the Senate," said Fritz Elmendorf, a spokesman for the Consumer Bankers Association. "Now that there is a bill and a leader in the Senate who backs it, we have a way to target our efforts."

Behind the Senate action is a recent Congressional Budget Office report that found direct lending will add $1.5 billion to the federal deficit if the costs of servicing the loans are taken into account. This is in contrast to past scoring of the program that predicted the government would save money.

In response to the new figures, Reps. William F. Goodling, R-Pa., and John R. Kasich, R-Ohio, said they would tuck legislation to end direct lending into the budget reconciliation bill this fall.

Mr. Lumetta writes for Medill News Service.

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