WASHINGTON - Student lenders scored a victory last week as the House axed President Clinton's direct loan program, leaving the student loan market to financial institutions.
But perhaps more important, the Senate removed a number of controversial fees on students and universities. The decision to drop these fees could quell White House opposition.
"Since many of the those cuts were removed from the bill, the Senate version has addressed about 70% of the President's education veto concerns," said John E. Dean, special counsel to the Consumer Bankers Association. "Now there's a very good chance that student loans will move out of the veto crossfire."
In both the House and the Senate, student loan provisions are tucked in massive budget bills. This week, lawmakers from each chamber will meet to iron out differences.
The House budget package, approved on a 227-203 vote Thursday, still contains a number of controversial provisions affecting students, including one that eliminates the six-month grace period after graduation that allows students to pay no interest on their loans. The Senate bill is silent on this point.
Unlike its House companion, the Senate measure would limit the direct loan program to 20% of the student loan market - not eliminate it.
Mr. Dean predicted that at least some of the direct loan program would be preserved after the House and Senate meet to hammer out differences between the bills.
For student lenders, any reduction in the direct loan market share limit would be welcome. To test the government's ability to lend to students, Congress voted in 1993 to allow the Department of Education to offer as much as 60% of all student loans.
"Obviously, my goal would be to get rid of direct loans, but 20% is definitely better than 60%," said Kathy Cannon, vice president of BankAmerica's National Student Loan Center.
Still, both measures would impose a number of new fees on lenders.
The measures would make financial institutions share 5% of unpaid defaulted loans.
Currently the government guarantees 98 cents of every dollar of a loan. The bills would drop that figure to 95 cents.
Both the Senate and House legislation would also double, to 100 basis points, the origination fee lenders must pay.
Jon A. Veenis, senior vice president at the Norwest Student Loan Center, said his institution is already preparing for the increase in costs.
"We have budgeted for the additional fees in our 1996 budget," Mr. Veenis said.