Lobbyists head off student loan cuts

November 24, 1995

In an impressive display of political clout the United States higher education establishment appears to have seen off Republican plans to severely cut back student loan programmes.

Conservative allies of Speaker Newt Gingrich in the House of Representatives earlier in 1995 proposed cuts amounting to $18 billion over seven years from the $35 billion the US government spends annually on student grants and loans.

That figure has been progressively lopped away to some $4 billion, and it is banks and lending institutions that will take the bulk of the remaining blow, education lobbyists say.

The Democratic White House and the Republican Congress are still at loggerheads over continued funding for direct government loans to students, a programme initiated by the Clinton Administration that has rapidly become popular among colleges. But even there a favourable compromise is considered likely.

At this late stage, nothing is final in the Washington policy mill. President Bill Clinton's budget battles with the Republican Congress, gradually gearing up for months, last week reached a climax with the partial shut-down of government offices.

But for the Alliance to Save Student Aid, a coalition of college and student lobbying groups, "every week we have been in a better position than the week before," said Fred Galloway, director of the Federal Policy Office at the American Council on Education.

Two items proposed by Republicans looking for savings to balance the US budget deficit - the end of a six-month grace period for loan repayments and a controversial clawback tax on colleges tied to the amount of loans their students receive - appear to be off the table.

A third proposal, an increase in the interest rate charges to parents on loans, was also abandoned in negotiations between the House of Representatives and the Senate, though there is some talk among conservative congressmen of reviving the idea.

"Basically everything we wanted with the exception of direct lending we got," said Galloway. "All of a sudden the financial hit to parents, to schools, got rescinded."

Education lobbyists have relied on the solid backing of the White House, supporters in the Senate, and grass roots organising by colleges and universities.

In the direct loan system the US government finances student loans directly rather than acting as a guarantor to bank loans.

While some colleges still worry about whether the government can effectively administer a huge system of loans, so far it appears to have worked smoothly. It now accounts for 40 per cent of the volume of loans and is expected to rise to 50 per cent or more.

Republicans want to cap it at 10 or 20 per cent, in part, sceptics say, because banking lobbyists have strongly protested their loss of business.

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