WASHINGTON Senate Democrats failed Sept. 26 to block Republican efforts to curb direct lending and institute a fee on universities, but they vowed to continue the fight on the Senate floor.

The Republican proposal to trim education spending in the federal budget is a setback for supporters of direct lending and of a post-graduation grace period to pay back loans. Democrats are calling it the greatest cut in higher education in history.

This is extremism in its worst form, said Sen. Edward Kennedy, D-Mass., the ranking Democrat on the Senate Committee on Labor and Human Resources. The real danger is in making college for the elite alone.

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The Republican proposal, which passed a 8-7 committee vote along party lines, would charge colleges and universities for the amount of loans their students take out from the government. It also would limit the number of colleges and universities allowed to participate in the direct lending program and would eliminate the post-graduation grace period for paying interest on student loans.

Republicans said they were sympathetic to the concerns of students, but they said the changes will not effect students while they are in school. Sen. Nancy Landon Kassebaum, R-Kan., who chairs the committee, emphasized that her top priority in designing the reconciliation package was to minimize costs to students,

It is inaccurate and unfair to suggest, as some have, that this proposal cuts the neediest students out of education, she told senators and the audience, which was packed with more than 200 college students, many of whom came to Washington for the mark-up meeting. Students included members of the United States Student Association and the newly formed Alliance to Save Student Aid.

The Republican-majority mandate to cut $10.8 billion from education over the next seven years has been a difficult task, Kassebaum explained, but I have attempted to do so in a way which keeps the interest of students foremost in mind and which applies spending reduction to everyone involved with student loans.

Lawrence Gladieux, the College Board’s executive director for policy analysis in Washington, said the $10 billion figure seems a little far-fetched.

I don’t get $10 billion out of this program without hurting students, he said. We favor savings that don’t cut into what students are able to rely on.

The proposal that now will go to the Senate floor for debate would institute a 0.85 percent fee on all new loan volume at each university. Colleges would pay the federal government that percentage of the total amount of loans students take out.

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The measure could cost large public institutions close to $50,000 a year, said Tim McDonough, vice president of public affairs for the National Association of Independent Colleges and Universities (NAICU).

It’s the first time the federal government would impose a tax like this, said McDonough. It’s like charging supermarkets for accepting food stamps.

But Kassebaum said the origination fee is not a cut in education and that it would average less than an additional $20 per student, or a total of $650,000 annually. I would contend that there is room for post-secondary institutions to take a hard look at their own costs, she said.

The loan payment proposal stipulates that schools cannot raise tuition or fees to supplement the new loan costs.

Yet McDonough said that it’s impossible to track where schools tack on fees. If our budget is tight as it is, you really don’t have a lot of places to go to cut the money, McDonough said. Schools will have to cut programs or scholarships to save the money.

Several students hissed at Kassebaum for suggesting that students would not be affected, and Sen. Paul Simon, D-Ill., one of Congress’ chief proponents of education funding, had to quiet them down. The students and several Democrats expressed concern that the fee would be funded by a cut in student services or professors’ salaries.

She says it’s not going to affect you, but hold on a second, Adam Hall, a sophomore at Bentley College in Waltham, Mass., said after the meeting. It’s only going to get worse.

Katie Sparaco, a freshman at Smith College in Massachusetts, predicted that some colleges may not want to accept needy students because the institutions would be taxed.

I don’t think they understand the ramifications, Sparaco said.

Another part of the proposal would limit the number of universities allowed to participate in President Clinton’s student loan program to 20 percent. Currently, more than 1,300 schools or 40 percent of the loan volume. The U.S. Department of Education stated this summer that four out of every five schools reported the program was successful.

Cathy Wicox, associate director of financial aid at the University of Iowa, said she hopes to see the direct student loan program remain at the school. It is so dramatically different from beforeless problems with students getting their checks, less students in linethat it would be a big jump to go back to the old way, Wilcox said. This is something that works to the benefit of students and schools.

Simon cited several of the many letters he received praising the program. At the University of Missouri-Columbia, for example, the number of temporary loans needed to bridge a gap in money decreased 78 percent. Ohio University’s financial aid office received 52 percent fewer telephone calls from students wondering when their loans would be dispersed. And Indiana University cited 90 percent less paperwork with direct lending.

We ought to listen to the schools, and we will save money for the government, Simon said.

Republicans said that most schools participating in the direct lending program would continue to do so. By capping direct loans at 20 percent, which is 10 percent less than Kassebaum’s original proposal, the federal government would save nearly $1.5 billion. And students with loans through President Clinton’s program would be able to consolidate their loans through a guarantee agency.

Ending the grace period on student loans would allow interest to accrue for the six months following graduation. Graduates would not necessarily have to pay this interest during those six month, which Republicans said would average between $4 and $9 a month, but it would be tacked onto the loan principal.

All these cuts, said Sen. Christopher Dodd, D-Conn., come at a time when more students than ever before are seeking a college degree. If the demand were abating somewhat, I could understand [the cuts], he said.

But Sen. Dan Coats, R-Ind., reminded the students that under his proposal no one is going to be denied a loan, no terms will change for those who are in school, and the federal government will continue to fund 75 percent of all student aid.