Bush and Democrats Tangle Over Student Loan Cuts

WASHINGTON - The new Democratic majority approved a bill that would cut interest rates on guaranteed student loans in half, at the expense of banks, credit unions and other student lenders, setting up a confrontation with President Bush.

The measure would reduce the rate on subsidized Stafford loans from 6.8% to 3.4% over the next four years and put new pressures on the few credit unions that continue to participate in the guaranteed loan program.

Lowering the interest rates would save a four-year college student who started school in 2007 about $2,280 over the life of the Stafford loan. The average student who begins school in 2011 would save even more, about $4,420.

Under the Democrats' plan the $6 billion in estimated savings for students would be made up in higher fees on participants in the student loan program.

Consequently, lenders have launched a full-scale lobby against the Democrats' plan. Critics of the plan say a better way to help students would be to increase grants, rather than cut the interest rates on loans.

The White House said President Bush is opposed to the Democratic bill because he believes it will encourage even more borrowing by debt-laden students.

Hundreds of CUs have abandoned the student loan program over the past five years as the market has become increasingly dominated by huge layers, including Salle Mae, the former government sponsored enterprise that has become the leading provider of student loans.