Congress Passes Overhaul Of Loan Programs

Congress gave final approval to a broad overhaul of federal student loan programs Friday, sharply cutting subsidies to lenders and increasing grants to needy students.

In quick succession, the Senate and the House approved the changes, allowing Democrats to say they had made good on one of their campaign promises last year, to ease the strain of rising college costs. In the Senate, the bill passed 79 to 12, reflecting broad bipartisan support, while the House approved it 292 to 97.

The federal education secretary, Margaret Spellings, said she was recommending that President Bush sign the bill because it “answered the president’s call to significantly increase funding” for Pell grants for low-income students. The administration had issued a veto threat against an earlier House version of the legislation.

Republicans in the House expressed disappointment at the administration’s change of course, arguing that the cuts in lender subsidies went too far.

The final bill, hammered out this week in a House-Senate conference committee, alters many of the ground rules for financing higher education, offering forgiveness on student loans to graduates who work for 10 years or more in public service professions like teaching, firefighting and the police, and limiting monthly payments on federally backed loans to 15 percent of the borrower’s discretionary income.

It also raises the maximum Pell grant, the basic federal grant for middle- and low-income students, to $5,400 from the current $4,310 over the next five years. To pay for the changes, the bill reduces federal subsidies to lenders by roughly $20 billion over the same period.

Democrats likened the legislation to the G.I. Bill that sent millions of veterans to vocational training and college after World War II. “Today we’ll need a similar bold new commitment to enable the current generation of Americans to rise to the global challenges we face,” said Senator Edward M. Kennedy, Democrat of Massachusetts and chairman of the education committee. “Today we’ll help millions of students achieve the American dream.”

Representative George Miller, Democrat of California and chairman of the House education committee, said that last year, Republicans took nearly $12 billion from federal student aid programs. “We took $11.39 billion and put it back into Pell grants,” Mr. Miller said. “That’s the difference that an election makes.”

Campaign promises aside, the changes reflect the steep and sudden decline in the fortunes of the $85 billion student loan industry after years of generous subsidies and support in Congress.