Education chair seeks
alternative college funding

The proposals come as Congress is considering numerous reforms to college student financial aid, and as federal and state investigators probe kickback schemes and conflicts of interest across the $85 billion (2.77 trillion baht) student loan business.

California Rep George Miller's bill represents a measured step toward compromise with Republicans over an issue that Democratic leaders want to wrap up soon, said Jaret Seiberg, a student loan industry analyst at Stanford Group Co.

"There has been a lot of pressure to get student loan reform done," Seiberg said. The House committee is scheduled to act on Miller's bill on tomorrow. If passed at that level, it will go next to the full House for consideration, but the fate of the legislation will be determined in the Senate.

Senate Education Committee Chairman Edward Kennedy, a Massachusetts Democrat, said he plans to move ahead next week on higher education spending and reform measures.

Miller wants to cut a lender subsidy, known as the special allowance payment, by 0.55 percentage point. President George W Bush has proposed a cut of 0.50 percentage point.

Miller also proposed cutting lender insurance rates to 95 percent from 97 percent, in line with a previously passed House measure and Bush's fiscal 2008 budget proposal.

Savings realized from the proposed cuts and others would be channeled into boosting college financial aid for students by $20 billion over the next five years, Miller said.

Under the bill, the maximum value of federal Pell grants given to students would go up by $500 per grant. Also, interest rates on federally guaranteed student loans would be reduced by half over five years, a measure already passed by the House.

"For years, college costs have been growing rapidly, far outstripping families' ability to pay them," Miller said.

"With this bill, we are saying that no one should be denied the opportunity to go to college simply because of the price."

The Miller bill also calls for eliminating a two percentage-point insurance rate boost awarded to lenders tagged as "exceptional performers," as well as increasing to 1 percent from 0.5 percent an origination fee charged lenders on new loans, while eliminating the fee for small lenders.

Both the exceptional performer award elimination and the origination fee cut have already passed the House. The president has backed the origination fee cut.

Miller further aligned his bill with a previous House bill and the White House by calling for cutting to 16 percent from 23 percent the collection fees kept by student loan guaranty agencies on funds they collect from defaulted loans.

Finally, the bill would cap student loan repayments at 15 percent of a student's post-graduation income, while students in economic hardship who work hard to repay their loans would have their debts forgiven after 20 years.

Missing from the bill is a proposal backed by Miller to reward colleges for steering students to Education Department direct government loans instead of federally guaranteed loans.

"The fact that this measure does not include language to turn over the student loan industry to Washington bureaucrats ... is a step in the right direction," said a spokesman for California's Howard McKeon, the House panel's top Republican.

Besides Sallie Mae, other lenders that could be affected by the bill include Citigroup, JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co, Wachovia Corp and SunTrust Banks Inc. — REUTERS