SPRINGFIELD - The governor's budget experts unveiled plans Monday night to sell the state's student loan debt to help fill the state's deficit.

Selling student loans backed by the Illinois Student Assistance Commission for people attending Illinois schools would allow more money to be pumped into scholarship programs, said John Filan, the governor's budget director.

"Governments aren't in the loan business," Filan said. "They are in the services of the people business. It's about servicing students not about managing a big loan portfolio."

The loans could be bought by third parties such as Bank of America, Filan said.

While a portion of the sale, which could be around $500 million, would go toward Monetary Assistance Program grants and other scholarships, most of the money would be funneled into the state's checkbook.

House Democrats are racing against a Tuesday midnight deadline to pass a Fiscal Year 2006 budget and bridge a $1.2 billion deficit.

The proposal was unleashed in the waning hours of the legislative session with no warning. Even the commission's executive director Larry Matejka was unaware of the proposal.

"I just saw this 30 minutes ago for the first time, myself," testified Matejka at a Senate committee meeting.

The proposal could cost 500 Illinois Student Assistance Commission employees their jobs because loans they police could be sold off and the agency's powers moved under the umbrella of the Governor's Office of Management and Budget.

Outside the committee room, Filan said the proposal might be changed to keep the commission in charge of student loans.

However, it is not known how students whose loans are sold by a third party might be affected.

"There are no guarantees," Matejka said. "We have a number of arrangements for students that make so many good payments their interest rate drops by half or a whole percent. We have very borrower friendly incentives for students."

Matejka said there was no guarantee that these "borrower friendly incentives" would continue.

The concern was shared by Senate Minority Leader Frank Watson, R-Greenville.

"They probably wouldn't have that tender-hearted touch," Watson said.

While Republican committee members voted against the proposal, their Democrat counterparts cast reluctant votes.

"I might be stuck on this one," said state Sen. Miguel del Valle, D-Chicago. "But, I don't feel good about this one."

"These are people," said state Sen. Ira Silverstein, D-Chicago, about the possibility of laying off 500 people in the closing hours of the legislative session.

The proposal now heads to the Senate floor for debate.

Matt Adrian can be reached at matt.adrian@;lee.net or 789-0865.