For months, the debate over the future of the government's popular guaranteed student-loan program pitted Democrats, who want a big program for the middle class, against the Administration, which favors a more modest plan with stricter eligibility cutoffs based on income. But as Congress considers action, another issue has emerged: What role should the private sector play in making the loans?
The measure pending in the House would make the government the lender, taking banks out of the business of originating the subsidized loans. Sponsors say this could save the government $1 billion a year--money that goes to banks as a special allowance. The draft Senate bill keeps the banks in the picture, but some members of the Labor & Human Resources Committee, led by Paul Simon (D-Ill.), want direct lending.
Although the idea of government lending was first broached by the Administration, the Education Dept. is now calling for a veto of any bill containing such a provision. That's good news for the Student Loan Marketing Assn., which has built a $3.6 billion business buying guaranteed loans from banks and repackaging them for investors. Sallie Mae's stock, which slumped as the direct-loan idea gained strength, rose 3 1/8, to 61 5/8, on the Oct. 21 veto threat.