A bill that would cut federal outlays for National Defense Education Act loans from $190 million to $150 million next year and provide for the eventual "phasing out" of the program was sent to Congress by President Johnson yesterday.
The bill is part of a multi-billion dollar package of legislation dealing with health and education.
In a version of the NDEA bill circulated among college and banking officials a month ago, Johnson proposed a more drastic revision of the loan system. It would have forced most students now receiving funds directly from the government to negotiate loans from private sources.
The bill which was sent to Congress would not immediately alter the basic structure of the NDEA loan program, though it would eventually lead to almost complete ourtailment of these loans, probably within the next few years.
Johnson would like to replace the NDEA loans with government-insured loans. Under this system, the government would guarantee loans which students obtain on their own. The government would also pay all of the interest while the student is in college and part of it after he graduates, provided his family's income, figured on a complicated formula, is under $15,000. If the family income exceeds that amount, the government will not subsidize the interest.
Earlier versions of the plan, including one contained in the Higher Education Act of 1965 which was passed last October, limited the interest rate on such loans to 6 per cent. Rep. John Brademas (D-Ind.) and the other critics of the plan have argued that this might make it difficult for students to secure loans, since banks would rather lend the money elsewhere at a higher interest rate.
The plan announced yesterday would allow the Secretary of Health Education and Welfare and the Secretary of the Treasury to decide on the ceiling for the interest rate so that students could compete in the money market.
Technically, the President is already empowered by the 1965 Act to implement the guaranteed loan program. He is sending the proposal to Congress, Rep. James H. Scheuer (D-N.Y.), a member of the House Committee on Education and Labor, said last night, to "see what we think of it."
If there is a lot of opposition, Scheuer added, the President might drop the proposal. "In any event, he will have gone on record as trying to keep the budget deficit down," Scheuer said.
Several other congressmen on the Committee said recently that the overhaul of the loan system is based on "budgetary considerations." They said that by having the government insure loans instead of handling the money directly, the full amount will not have to be listed in the budget.
Rep. Edith Green (D-Ore.), a high-ranking member of the Committee and the person who may steer Johnson's entire education program through the House, predicted last night that Congress may offer some opposition to the current plan and "a good deal more" to the proposal to end NDEA loans. "We think the NDEA loan program has been a success, and we will need concrete guarantees that no one will be hurt if we change it," she said