WASHINGTON -- Bowing to protests from the Clinton administration and Senate Democrats, the Senate Labor and Human Resources Committee abandoned a proposal yesterday that its critics said would have given away $1.8 billion in federal money to nonprofit student loan guaranty agencies.
Republican Sen. Nancy Landon Kassebaum of Kansas, who heads the committee, insisted that she had never intended to give away the money. But she acknowledged that the language drafted by her staff was "subject to various interpretations, including some I do not share."
Therefore, she said in a letter to Democratic Sen. Edward M. Kennedy of Massachusetts, she was asking the Senate Budget Committee to delete the offending language from the part of the budget reconciliation bill that deals with cuts in the student loan program.
Mr. Kennedy had singled out the provisions as unnecessary largess to the guaranty agencies, which insure banks against losses on loans to students.
Mr. Kennedy replied with a letter thanking Ms. Kassebaum for striking the "problematic provisions." But he warned her that he would continue to oppose other sections of the bill that help the banks and guaranty agencies by cutting the size of a competing program of direct federal loans to students.
Tom Wolanin, deputy assistant secretary of education for congressional relations, said the department welcomed the decision.
The secretary of education, Richard W. Riley, had denounced the committee's legislation last month and then said a rewritten version offered last week not only failed to solve the original problem but also added new ones.
Mr. Wolanin said yesterday's decision was "a step in the right direction. It does not solve all of the problems with the guaranty agencies, but it solves a major one."
The $1.8 billion has built up during many years, starting with federal seed money and augmented by fees and other collections by the guaranty agencies.
The agencies have repeatedly sued to claim that some or all of the money was theirs to use as they saw fit. But the courts have consistently found that the money belonged to the federal government, with the guaranty agencies acting simply as trustees.
The dispute is really about what happens to the reserves if a guaranty agency goes broke, as some have in the past, or if it gets into lesser financial difficulties or simply chooses to go it of business.
Education Department officials and Mr. Kennedy each had argued insistently that the language in the bill would have prevented the federal government from getting its own money back.
Ms. Kassebaum said in her letter to Mr. Kennedy, "My main concern was to carefully limit the department's authority to require guaranty agencies to turn over 'excess reserves' to the federal government."
She said excessive efforts by Congress to recapture such reserves in 1987 had threatened the stability of the guaranty agencies and had to be undone by 1992 legislation.
Ms. Kassebaum said the language in the bill "attempted to address these issues." But she said it appeared better to drop the provision now and then to wait until the committee could "work out clearer language in a bipartisan way."