Magazine article American Banker

U.S. Panel Urges Direct Student Loans

Magazine article American Banker

U.S. Panel Urges Direct Student Loans

Article excerpt

WASHINGTON - A federal commission recommended on Wednesday that banks be cut out of the educational lending business.

The commission, formed by Congress two years ago to explore changes in student aid programs, endorsed a system of direct lending by the federal government.

Bankers have opposed the concept, preferring to continue their role in making government-guaranteed loans.

The report of the National Commission on Responsibilities for Financing Postsecondary Education "steps on a lot of powerful financial toes," Sen. Paul Simon, D-Ill., an outspoken advocate of direct federal lending, said at a press conference.

|Timely Counterweight'

Sen. Simon called the $7 billion lending plan "a timely counterweight to the intense lobbying that [the Student Loan Marketing Association] and others are mounting to kill the direct-loan idea in the cradle."

Joe Belew, president of the Consumer Bankers Association, said: "This is a major step backward that would result in significant inefficiencies and a shifting of costs to post-secondary, institutions."

Bankers feel particularly vulnerable this year because they have lost an ally in the White House. The Bush administration opposed direct lending, and President Clinton's stated concern about high education costs could lead to a revamping of student lending.

"There is a concern if the new President gets I 00% behind a direct-loan program, the odds are the Democratic Congress will give it to him," said Philip S. Corwin, director of retail banking at the American Bankers Association.

Lawmakers and education groups have been warming to the idea of the government's making loans directly to students as a way to cut costs. …

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