House, Senate agree on college-aid package

WASHINGTON - House and Senate negotiators reached a deal yesterday to boost aid to college students by cutting $20 billion in government subsidies to banks that issue student loans.

Under an agreement reconciling differences between House and Senate bills, the maximum Pell grant, which goes to the poorest students, would increase from $4,310 to $5,400 by 2012.

The legislation also would cut interest rates on federally backed student loans to poor and middle-class students from 6.8 percent to 3.4 percent over the next four years.

House Democrats pushed for an interest-rate cut, following up on campaign promises. Such a provision had not been included in the Senate-passed version of the bill.

Democratic lawmakers said the $20 billion in cuts were aimed at excessive government subsidies to the industry. The subsidies were established to ensure that banks entered the college-loan business.

Joe Belew, president of the Consumer Bankers Association, issued a statement yesterday criticizing the legislation. He said services to borrowers would be affected.

"Inevitable cuts in critical customer support will mean less service, more confusion and more difficulty for students and parents when applying for financial aid," he said.

Nearly all of the cuts would go toward making college cheaper, but $750 million would be spent on reducing the federal budget deficit.

The legislation is attached to a must-pass bill needed to meet spending targets in the federal budget.

Under the House-Senate agreement, the government would provide loan forgiveness for college graduates who go into public-service professions, such as teaching.

It also would cap annual payments for students at a percentage of their income, to prevent students from having to pay back more than they can afford.

The full House and Senate are expected to vote on the legislation soon.