White House threatens House student loan bill veto

WASHINGTON (Reuters) - The White House on Tuesday threatened to veto a bill backed by U.S. House of Representatives Democrats that would slash subsidies paid to college student-loan companies such as Sallie Mae, Citigroup and Bank of America.

Expected to come up for a House floor vote on Wednesday, the House bill and a similar measure in the Senate have been attacked by the $85 billion student-loan industry, but championed by industry critics, including some student groups.

If adopted into law, the bill would likely squeeze large lenders' profits and chase smaller ones from the sector, industry analysts have predicted.

The White House said late on Tuesday that if the House bill went to President George W. Bush "in its current form, his senior advisors would recommend that he veto the bill."

The White House statement said the bill "fails to target aid to the neediest students currently in college and creates new mandatory federal programs and policies that are poorly designed and would have significant long-term costs."

Rep. George Miller, chief sponsor of the measure, said in response: "It's unfortunate that the president would let a veto stand between millions of students and the college financial aid they so urgently need."

The California Democrat said, "This year, Democrats made a commitment to helping students and families pay for college, and we are delivering on that commitment."

Democratic leaders now in control of Congress are eager to nail down student loan reform as a 2008 campaign issue.

Miller's House Education and Labor Committee approved the bill on June 13 by a 30-16 vote largely along party lines.

The Senate education committee has approved a bill similar to the House measure but its floor vote status is uncertain.

Bush has also proposed cutting student-lender subsidies but wants to redirect savings from the cuts almost entirely toward a grant program that gives money for college to students.

Miller's bill would direct much of the subsidy cuts toward the grant program, as well, but would also fund other programs seen as unacceptable by the White House and House Republicans.

"The administration is disappointed that Congress is using the budget reconciliation process as a vehicle to create a host of expensive new federal programs," the White House said.

The fight over subsidies and grant funding comes as state and congressional investigators continue to probe kickback schemes and conflicts of interest in the student loan industry.