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GOP Cost-Cutters Turn to Student Loan Program

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TIMES STAFF WRITER

Moving to wring almost $11 billion in savings from one of the government’s most popular programs, Senate Republicans want to scale back spending for student loans by charging colleges a new fee, raising the cost to borrowers and clipping the wings of one of President Clinton’s prized education initiatives.

Senate Labor Committee Chairwoman Nancy Landon Kassebaum (R-Kan.), author of the proposal, says the fee on colleges would spread the pain of budget cuts to all who benefit from the student loan program. That includes the banks that make the loans, the administrative agencies that help run the program as well as the schools whose tuition bills are paid with loans.

However, the college fee has been opposed by Republicans as well as Democrats.

Critics say the new fee, which could cost the University of California system alone about $3 million in one year, is akin to taxing schools for educating the neediest students and would inevitably be passed on to students in the form of higher tuition.

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The bill also takes a swipe at Clinton by clamping limits on a program he pushed through Congress last year that allows students to borrow directly from the government and make repayments geared to their income.

On the House side, a committee is expected to take up a companion student loan plan this week. It would abolish Clinton’s direct-lending program altogether but would not levy the fee on colleges.

The Kassebaum bill, expected to be approved by the Labor Committee this week, is part of this fall’s big deficit-reduction package, which is also expected to include reductions in the growth of Medicare and Medicaid, cuts in farm subsidies as well as a $245-billion tax cut.

The student loan debate centers on a program that is expected to cost $27.7 billion over the next seven years if no changes are made.

Under the program, the federal government subsidizes low-interest loans to students made by private lenders and guarantees against default. Students are charged no interest while they are in school and during a six-month grace period after they leave college. In an effort to simplify student loans, reduce administrative costs and give students more repayment options, Congress last year approved Clinton’s direct-lending program.

The budget-balancing plan passed in May called for $10.8 billion in student loan savings over seven years but did not specify exactly how they should be achieved. Kassebaum, one of many Republican moderates who urged more money for education during the budget debate, rejected proposals from some Republican budget writers to begin charging students interest while they are in school.

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Instead she produced a plan she said would minimize the cuts taken directly from student benefits.

But Democrats lashed out at the plan, saying it amounted to a tax on students and colleges to help finance Republican tax cuts for the well off.

The bill would eliminate subsidies during the post-graduation grace period for new borrowers. That would add $933--or $7.78 a month--to the amount owed by students who borrow $23,000 for undergraduate education, the maximum allowed.

Kassebaum also proposed increasing interest charged in another program of guaranteed loans to parents of college students, from 3.1 points above Treasury bill rates to 4 points.

Almost $4 billion in savings would come from cutting subsidies to banks, state student loan agencies and others involved in administering the program.

On Clinton’s direct-lending program, Kassebaum would limit the amount lent through the program to 20% of total student loan volume--down from the 60% cap that would be allowed under current law. She said that would save $1.5 billion over seven years--a figure Democrats derided as illusory.

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Democrats argued that in seeking to limit the new program, Republicans were bowing to pressure from private banks who do not want to lose student loan business to the new federal program.

Kassebaum’s bill would save about $2 billion over seven years through her proposal to charge schools an annual fee equal to almost 1% of the amount borrowed by their students. Students in the University of California system are expected to borrow a total of $350 million this year, according to Nancy Coolidge, coordinator for government relations for the state system, which would result in a fee of nearly $3 million under Kassebaum’s bill.

Colleges have howled in protest at the proposal. The American Council on Education, in a letter to Kassebaum, said the proposal made as much sense as taxing grocery stores based on the number of food stamps they accept.

The idea has also run into stiff opposition from Kassebaum’s fellow Republicans. A proposal by Sen. John Ashcroft (R-Mo.) to drop the college fee and make deeper cuts in other areas was rejected, 9 to 7, when the Labor Committee began debate on the bill Friday. Kassebaum and Sen. James M. Jeffords (R-Vt.) joined all the panel’s Democrats to oppose the amendment.

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