Democrats and student loan watchdog advocates have criticized as inadequate legislation passed by Congress to address loopholes that allow student loan companies to collect huge subsidies from the government.

The bill ending the federal guarantee of a 9.5 percent rate of return to student loan lenders was passed Saturday without opposition by the Senate. The House passed it Thursday, also without opposition.

The government guarantees the subsidized interest rate even though most students pay rates of 3.4 percent.

The amount paid by the government to student loan companies more than tripled from 2001 through June 2004, from $209 million to $634 million.

Under the legislation, the fixed 9.5 percent interest rate would be replaced with an adjustable rate reflecting market rates. The estimated $285 million in savings would be used to forgive student loans for teachers who spend five years at disadvantaged schools and in the fields of math, science and special education.

The bill, supported earlier by the administration, expires in one year, with sponsors pledging to find a permanent solution when the higher education law is renewed next year.

Without the bill, "we would have essentially ended up with a windfall to these lenders, and these individuals who go out and teach in these tough schools and difficult subject matters would have ended up with large student loans," said Sen. Judd Gregg (R-N.H.), chairman of the Health, Education and Labor Committee.

However, critics said the legislation provides only a temporary fix and fails to address all loopholes.

Democrats, who reluctantly supported the bill's one-year provision, contend that the legislation still allows banks to "recycle" profits from existing loans to make new loans that would then be eligible for the high interest rate.

Sen. Edward M. Kennedy (D-Mass.) said the legislation failed to address what he called the "full interest rate gouging" that loan companies had engaged in.

"What the Congress has done is only a down payment, because it does not close the entire, notorious 9.5 percent student loan loophole, and because even this reform will expire after one year," Kennedy said in a statement. "We will be back through on the first available vehicle to shut down this wasteful corporate subsidy once and for all."

Robert Shireman, director of the Institute for College Access and Success, a nonprofit student loan watchdog group, agreed that the legislation did not go far enough.

"This only provides partial and temporary closure of the loopholes and that partial closure will allow for billions of dollars of continued payments to these student loan companies," he said in an interview.