HOUSE BILL SHIFTS STUDENT LENDING

WASHINGTON - Students will turn to Uncle Sam, not private lenders,
for loans to pay for their college educations, the House voted
Thursday. The legislation is a blow to major banks and student loan
giant Sallie Mae, which will be cut out of a large part of the $92
billion business.

The bill also eases restrictions on students who are convicted of
drug possession, erasing a 10-year-old provision authored by Rep.
Mark Souder, R-3rd, that limits their access to federally guaranteed
student loans.

But Souder said he has an agreement with the author of the bill to
resurrect the restriction for people convicted of a felony not a
misdemeanor possession charge. He said that would probably mean the
restriction would apply to people convicted of possession of cocaine
and meth but not marijuana.

But he said the restriction against loans for students convicted of
drug possession likely would not have withstood a court test.

Rep. George Miller, D-Calif., chairman of the Education Committee,
said he has agreed to negotiate with Souder over the provision after
the bill is acted on by the Senate.

The legislation keeps the restrictions on loans to students with
repeated convictions for selling drugs.

The House voted 253-171 to change the lending policy, which has been
in effect since the 1970s when the federal government began
subsidizing private lenders that make college loans. Souder and Reps.
Dan Burton, R-5th, and Mike Pence, R-6th, opposed the bill.

Changing the policy so Washington is the direct lender would allow
the government to shift tens of billions of dollars in savings to
student aid over the next decade, the bill's sponsors said.

Republicans said the change would end up costing taxpayers more.

Burton said it would kill jobs, including in Indiana, where Sallie
Mae employs 2,300 people in Fishers and Muncie. Sallie Mae had warned
that stripping it of the student loan business would result in a 30
percent cut in its workforce nationwide.

"More than 30,000 private-sector jobs are directly affected by what
you're going to do today," Burton told House members. "In the state
of Indiana, it's 2,356 jobs. ... I don't understand, at a time of
economic difficulty, you want to do something that's going to put
more people out of work."

Souder, a member of the committee that wrote the bill, said the
legislation "is the beginning of the creation of a national bank, and
that there is no logical reason why every other lending category
won't become a national bank, too. That's the big gulp we are hearing
here and in many other areas, a massive government takeover in
category after category."

But Democrats and President Obama said the legislation will protect
student loans from upheaval in the financial markets and will free up
money for other student aid.

The change will save the government $80 billion over 10 years,
according to the Congressional Budget Office. Most of the savings
would be used for programs such as Pell grants, which help low-income
students pay college tuition.

"This plan would end the billions upon billions of dollars in
unwarranted subsidies that we hand out to banks and financial
institutions," Obama said during a speech to students at the
University of Maryland. "Instead, we're going to use that money to
guarantee access to low-cost loans, no matter what the economy looks like."