Senior Republican vows student loan bill fight

WASHINGTON (Reuters) - Republicans will keep fighting a Democratic bill in the U.S. Congress that would squeeze banks out of the $92 billion student loan origination business, a top Republican lawmaker said on Wednesday.

Despite the likelihood that the legislation will pass the House of Representatives in September, Representative John Kline told Reuters he and others will resist the bill in the House and suggested it could stall in the Senate.

Companies with a stake in the matter include Sallie Mae SLM.N, Bank of America (BAC.N), Citigroup (C.N) STU.N, Wells Fargo (WFC.N), JPMorgan Chase (JPM.N) and many others.

"I have resisted and will continue to resist erasing private capital and the private sector from the student lending business," said Kline, who last month became the top-ranked Republican on the House Education and Labor Committee.

"Given the numbers, the chances are that it will pass the House. We'll make every argument we can. We'll put the debate out there ... Then we'll see what the Senate can do," Kline, a conservative from Minnesota, said in an interview.

First elected to Congress in 2002, Kline takes over the leadership of the Republican minority on the committee as a long struggle over the future of higher education finance enters a pivotal stage.

The committee last week voted to shut down the $55 billion Federal Family Education Loan (FFEL) program, which for 35 years has been at the core of a lucrative government-guaranteed student loan business model used by private-sector lenders.

The 30-17 committee vote moved Democrats closer to a long-held goal -- closing FFEL and moving most student loans into the U.S. Education Department's Direct Loan program.

The idea is to save taxpayers money by eliminating subsidies paid to private-sector lenders and to shield student lending from the volatile ups and downs of Wall Street.

MILLER SEES VOTE SOON

Democratic Representative George Miller, the committee's chairman, told Reuters on Tuesday in an interview that the legislation will be brought to the House floor for a vote "probably right after the August break."

Passage would represent a step forward for the Obama administration's broad effort to tighten banking and capital market regulations following the worst financial crisis in generations and a deep and prolonged economic recession.

The House is scheduled to begin its summer recess on Friday and return in early September.

Republicans have been fighting to preserve FFEL, arguing its shutdown will eliminate thousands of jobs and that FFEL has a good record of serving college students.

"We are making the counter-argument that for 40 years we had somewhere on the order of $70 billion in private capital in the lending business," Kline said.

FFEL lenders were embarrassed in 2007 by a scandal in which some were found to have given money and gifts to college financial aid officers to drum up business.

Last year, the government had to intervene with emergency aid in the student loan market to keep it from freezing up in the general crisis that engulfed global capital markets.

KLINE SEES "EXCUSE"

The Democrats are using the financial crisis "as an excuse" to squeeze out the private sector, Kline said.

"Everybody ought to be watching what's happened here. You can erase a private industry. I just find that to be sort of shocking and appalling," he said.

Miller's bill would leave room for some private-sector firms to carry on in the market as student loan servicers.

"Clearly it will keep some people employed," Kline said, but he added that the business opportunity envisioned for servicers is "nowhere near what we've got now."

He said, "This is just servicing, not origination. So it's a very, very big impact ... People will lose their jobs. There's no question about that."

(Reporting by Kevin Drawbaugh; Editing by Kenneth Barry)