Senate Approves College Loan Program : Education: The model proposal is intended to improve efficiency of government aid to students.

The Senate approved compromise legislation Tuesday creating a model college loan program that will test out long-debated ideas by making the government a direct college lender and basing loan repayments on a student’s post-college income.

On a voice vote, the lawmakers approved legislation reflecting a deal that congressional bargainers and President Bush had struck earlier in the day.

The model program, intended to improve efficiency and cut a soaring federal-loan default rate, is expected to involve about $500 million a year in loans and more than 200 private and public American colleges. The White House had threatened to veto a more expensive model program, but agreed to the current plan last weekend.

The provisions for the program are included in the pending Higher Education Reauthorization Act. Sponsors said the compromise could come up for a final vote next week in the House and then sent to Bush.

Proponents, including Sen. Dave Durenberger (R-Minn.) and Sen. Paul Simon (D.-Ill.), contend that at a time when more middle-class families cannot afford college costs, making the government the direct lender will save the costs involved when banks or guarantee agencies act as the middlemen. Tying the repayment schedule to a former student’s income level should ease the burden of repaying loans, advocates say.

“We can’t afford to be spending money that belongs in higher education on collection agencies and bad debts,” Durenberger said.

Federal student loan defaults reached $3.9 billion last year and have totaled $11.5 billion since 1987.

Colleges and universities will be invited to apply to take part in the program, which is expected to make its first loans in July, 1994.

Thirty-five percent of the loans made under the model program will have variable payments that are tied to the borrower’s income.

The U.S. secretary of education is to work out the specifics of the program, including how much a borrower would repay at each income level. Earlier versions of the bill specified that if a borrower’s income fell so low that he paid no taxes, he would not be required to pay back any portion of the loan that year.

The bill will also call for the federal government to compare the cost of the loan program to other federal loan programs in order to judge whether the program cuts administrative overhead.