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Student Loan Overhaul Advances

The partisan split was more pronounced in the House education panel, which approved its bill 30 to 16. Rep. Howard P. "Buck" McKeon (Calif.), the committee's ranking Republican, said he could not support such large subsidy cuts on top of those enacted in a previous Congress.

"The concern is that as we drive lenders out of the business, the ones that are going to be hurt the most are the students that need the help the most," McKeon said last week. He also criticized Democrats for cutting interest rates for graduates instead of directing savings to financial aid for students in college.

White House spokesman Scott Stanzel said the administration was "encouraged by the desire of Congress to follow the president's commitment to focus more federal dollars to students most in need."

Both bills would launch a significant initiative that could lead to a revamping of the loan program. They would create pilot "loan auctions" in which companies would bid to participate in the federal loan program by stating the lowest subsidies they would accept from the government.

Student loan companies oppose the auction proposal and said it would create instability in the industry. But supporters said loan auctions would allow the market to determine subsidy rates instead of having Congress set them arbitrarily. The money saved would then be passed on to students.

"Lenders should compete against each other to participate in the federal student loan program," Kennedy said.

The Senate measure would bar lenders from offering gifts and perks to financial aid officers and prohibit other practices uncovered in investigations led by congressional Democrats and New York Attorney General Andrew M. Cuomo (D). The House overwhelmingly approved a similar bill last month.

Senate Majority Leader Harry M. Reid (D-Nev.) expects to bring the student loan bill to the floor in July, said spokesman Jim Manley. House Speaker Nancy Pelosi (D-Calif.) also plans to bring the legislation to a vote by the end of July, Miller said.

The legislation is protected by a procedural maneuver known as budget reconciliation. That means it does not face the threat of a Senate filibuster, which would require 60 votes to overcome.

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