House panel seen backing student loan reforms

By Kevin Drawbaugh

WASHINGTON (Reuters) - The $85 billion student loan industry and the sprawling U.S. college aid system it serves are in for another round of reforms under legislation expected to win easy approval on Wednesday from a congressional panel.

The bill to come before the House of Representatives education committee would make lenders and colleges adopt codes of conduct governing student loans, part of a crackdown following scandals earlier this year in the loan market.

Students and parents would get more information about borrowing under the bill and, for the first time, colleges would be explicitly urged to restrain tuition inflation.

The measure has wide support. Committee Chairman George Miller, a California Democrat, is sponsoring it. The panel's senior Republican, Rep. Howard McKeon, also from California, said the bill "reflects bipartisan collaboration."

Swift passage on the House floor is expected by aides from both parties. The Senate has already passed similar legislation.

But the House and Senate versions differ, so reconciling them into a single package to send to President George W. Bush may take a while longer.

"There are significant differences between (the House) bill and the reauthorization legislation that passed the Senate" in July, said Mark Kantrowitz, a student aid expert who runs the web site www.FinAid.org.

"While Congress could move quickly and get (the bills) done this year, I think it is more likely that it will have to wait until early next year," Kantrowitz said.

By that time, students and parents will be headed into the annual American spring rite of filling out applications for financial aid, and the rising cost of higher education may have emerged as a more prominent presidential campaign issue.

The three Democratic primary front-runners -- Hillary Clinton, Barack Obama and John Edwards -- have already said they would end the scandal-tarred federally guaranteed student loan program that is the heart of the student lending network.

Inquiries a few months ago by New York Attorney General Andrew Cuomo and the U.S. Congress uncovered kickback schemes and conflicts of interest in the federally guaranteed market, and in the smaller, faster-growing private student loan market.

The scandals threw the industry onto the defensive and helped pave the way for legislation, signed into law by Bush on September 27, that slashed federal subsidies to lenders such as Sallie Mae, Citigroup and many others.

The subsidy cuts bill was expected to pinch lender profits and allow more federal money to go to student grants, but it did not directly address unsavory marketing practices.

Many lenders and schools have adopted codes of conduct in settlements with the New York attorney general. The House bill, closely matching the Senate's, would set such codes into law.

Both bills would give students more information about borrowing, while also shortening and simplifying the complex, five-page, 100-question standard aid application form.