Senate cuts college student lender subsidies

By Kevin Drawbaugh

WASHINGTON (Reuters) - The U.S. Senate voted on Friday to cut federal subsidies to college student loan firms, such as Sallie Mae, by $18.3 billion, redirect savings to student grants and ease some student loan repayment terms.

The bill, approved by a 78-18 vote, would cut interest rates for student borrowers, provide loan forgiveness for graduates pursuing certain public-service careers, and cap loan repayment installments at 15 percent of monthly income. It also would make more students eligible for loans.

The annual maximum level for Pell grants, a key part of America's complex student financial aid system, would go up in stages to more than $5,000 a year from $4,310 under the bill.

At its present level, a Pell grant covers only about a third of the roughly $13,000 annual total cost of attending a public university full-time as an undergraduate, and even less of the $30,000 annual cost of going to a private school.

College expenses have soared in recent years, with the result that two-thirds of students today get some form of financial aid, such as grants, scholarships and loans.

Democrats promised in the 2006 election campaigns to address voter anxieties about college costs and are now pushing hard for a revamp of the $85-billion student loan industry.

Arguing that the for-profit loan market sometimes serves banks better than students and is riddled with conflicts of interest, Democrats won a victory last week when the House of Representatives passed a reform bill containing lender subsidy cuts even deeper than the Senate bill proposes.

"Education has always been the engine of the American dream. But rising college costs will make that dream fade away unless we act," said Sen. Edward Kennedy, chief sponsor of the Senate bill, during a bitter floor debate that lasted from early Thursday until the wee hours of Friday morning.