Lawmakers to Cut Subsidies To Student-Loan Providers

Bloomberg News
Thursday, September 6, 2007

House and Senate members agreed to cut subsidies to student-loan providers, such as Sallie Mae of Reston, by $20.9 billion over the next five years as Congress seeks to free up funds for financial-aid packages for students.

The legislation would cut subsidies to student-loan providers by 0.55 percentage points, more than the 50 basis points President Bush proposed in his 2008 budget, said Rachel Racusen, a spokeswoman for the House's education committee.

Under the legislation, the funds cut from lender subsidies will instead go to $20.2 billion in student aid and $750 million for deficit reduction, Racusen said. A conference of House and Senate members had been meeting to find common ground after passing competing legislation earlier this year.

"The Democratic Congress is delivering on our promise to make college more affordable and accessible for all qualified students," said George Miller (D-Calif.), chairman of the House Education Committee.

The House and Senate could vote on the legislation this week before it is sent to Bush.

The proposed cuts to lender payments may affect the planned $25 billion acquisition of SLM, also known as Sallie Mae. A group led by buyout firm J.C. Flowers may abandon the deal if subsidy cuts exceed the $16 billion proposed in February by Bush, according to a July 11 statement by SLM, the biggest U.S. provider of student loans.

Stephanie Cutter, a spokeswoman for the buyers' group, declined to comment on the conference report.

Sallie Mae has said it doesn't expect the proposed reductions by Congress to scuttle the transaction and expects it to close in October. Representatives for the lender didn't return calls seeking comment last night.

The legislation would increase the maximum value of Pell Grants to $5,400 by 2012, up from $4,050 in 2006. Interest rates on need-based student loans would be cut in half, to 3.4 percent from 6.8 percent, over the next four years.

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