Chairman of House Education Committee Backs Obama's Loan Plan

Washington — The Democratic chairman of the education committee in the U.S. House of Representatives has rejected lenders’ pleas and will offer legislation soon to enact President Obama’s plan to end the guaranteed-student-loan program, an administration official confirmed today.

The decision by Rep. George Miller of California does not come as much of a surprise. Privately, college and student-loan lobbyists have been saying for weeks that the House was likely to adopt the president’s approach because of the savings it would generate. The Congressional Budget Office has estimated that switching all loans to the government-run direct-loan system would save taxpayers $87-billion over 10 years.

Still, some lenders and guarantors had held out hope that the chairman might consider alternatives to an outright end to guaranteed lending, and last week dozens of entities offered a last-ditch “consensus plan” that they said would save as much money as Mr. Obama’s plan, while preserving a role for private capital.

It’s still unclear whether the House bill would set aside money for financial-literacy and other borrower services, as lenders and guarantors have proposed. Mr. Obama has said that a $5-billion fund that is part of his plan would pay for those programs.

Either way, lawmakers are not expected to use the savings that the bill would generate to make Pell Grants an entitlement, as the president proposed. Instead, they are likely to provide an infusion of “mandatory” money for the program, while allowing appropriators to continue to set the maximum award, lobbyists say. Additional money could go to community colleges, under a plan that the president is expected to announce at Michigan’s Macomb Community College on Tuesday, and to keeping interest rates on student loans low.

The powerful chairmen of the appropriations committees in both chambers of Congress have objected to Mr. Obama’s plan on the grounds that it would put a ceiling on the maximum award. Under the president’s proposal, the maximum Pell Grant would increase each year at a rate equal to the Consumer Price Index plus a percentage point.

The debate over student loans is far from over, however. The bill will face opposition from moderate Democrats, who are nervous about job losses in their districts, and must also clear the Senate, where some Democrats have voiced similar concerns. —Kelly Field