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Senate panel OKs reduced subsidies for student loans

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The Senate education panel yesterday approved legislation that would cut student-loan subsidies to lenders by about $18.3 billion and spend most of that to increase student grants, forgive some students' debt and bolster other student programs.

"This is a historic day for America's students," said Sen. Edward M. Kennedy, chairman of the Health, Education, Labor and Pensions Committee, which approved the bill on a 17-3 vote with a healthy bipartisan majority.

The measure would produce about $1 billion in savings. The House education panel last week approved similar legislation that would cut lender subsidies by about $19 billion, spend most of it on similar help for students and save about $750 million.

Some Republicans complained that Democrats are claiming to cut excess fat when they are using almost all of the savings to expand government programs.

Sen. Judd Gregg of New Hampshire, a member of the education committee and the budget panel's top Republican, said he would rather "take a much bigger chunk of the savings and put it to deficit reduction."

He said Democrats are using a special procedure in budget rules, meant to reduce the size of government, to protect their bill from Senate filibuster. He and two fellow Republicans, Sens. Richard M. Burr of North Carolina and Wayne Allard of Colorado, voted against the bill.

"They found a new mechanism to protect themselves while they're spending," Mr. Gregg said of Democrats. "This is a brand-new world of a new way to spend money around here."

The committee approved a second bill, on a 20-0 vote, that would renew the Higher Education Act, make several reforms to the student-loan process, create new rules for lenders and colleges, and improve K-12 teacher training.

The House and Senate are taking up student-loan reform this year as federal and state investigators discover conflicts of interest, kickback schemes and other questionable behavior between lenders and college officials.

Mr. Kennedy's legislation would reduce reimbursement rates to lenders and increase fees. In turn, it would boost the maximum Pell Grant award for students from $4,310 to $5,400 by 2011 and open it to an additional 260,000 students by 2012. It would limit monthly student-loan payments to 15 percent of discretionary income and would forgive student loans for those who spend 10 years in public-service careers such as teaching.

Consumer Bankers Association President Joe Belew warned that the cuts in lender subsidies likely will be passed on to student borrowers in the form of higher interest rates and fees. He said the bill "is of great concern to financial institutions and other loan providers."

Meanwhile, the legislation renewing the Higher Education Act would ban lenders from giving gifts, trips or other incentives to college officials in order to curry favor and secure more student loans. It would require colleges to publish more information about their costs, require lenders to give students more written disclosures, renew several student programs, create a few new programs, and simplify the application form for federal college aid.

The House last month approved legislation that does many of the same things. The Bush administration has called for changes similar to those in all of these bills, including a simpler financial-aid form, more transparency in college costs, $15.7 billion in cuts to student-lender subsidies and $13.8 billion to help students.

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