Students Lenders Cheer Congressional Effort To Curb Direct Loans

claimed victory in a budget agreement reached last week, student lenders say they're the real winners. That's because the temporary spending measure that the two sides agreed to Nov. 19 commits the White House to using budget estimates that favor the private sector over the government in the debate over student loans. The Congressional Budget Office, which would assume responsibility for estimating the cost of budget decisions, has previously said that eliminating the direct government loan program would save taxpayers about $1.2 billion over seven years. The administration's budget estimaters say the direct loan program would save the government money. "This is all-important," said Joe Belew, president of the Consumer Bankers Association. "From the beginning of this whole direct loan episode, the industry has been held hostage to budget scoring." The direct loan program began last year. Under current law, the government would be allowed to capture as much as 50% of the market next year. The accord between the White House and Congress is particularly significant because President Clinton is expected to veto a broad budget balancing bill that would drop the government's share of the student loan market to 10%. That means the White House and Congress will soon be engaged in a new round of budget talks in which student lending could be in play. If that happens, the agreement to use the estimates of the Congressional Budget Office could be critical. While Mr. Belew was enthusiastic about the prospect of curbing the direct loan program, the Clinton administration took a decidedly different view. Leo Kornfeld, senior adviser to Education Secretary Richard W. Riley, said that simple mathematics prove the direct loan program costs less to run than the federal guaranteed student loan program. By eliminating the guarantee program, the government would save more than $17 billion during the next five years because it would no longer have to pay banks and guarantee agencies quarterly administrative allowances, Mr. Kornfeld. "All that would be gone under 100% direct loans," he said. "It's obvious that direct loans aren't more expensive." Mr. Kornfeld also criticized the methods used by the Congressional Budget Office to arrive at the $1.2 billion in savings that would result from axing direct loans. Among other things, the budget office's projection of how much the guaranteed loan program would cost was so low "that the government wouldn't have been able to do any oversight," he argued. The accord also mandated that "the balanced budget must protect ... education," a statement that concerned some bankers. "They refer to education, but nothing more specific, so we're curious as to exactly what that means," said Jon A. Veenis, senior vice president at Norwest Student Loan Center. "Everyone has a different spin on what was agreed to."

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