The House is expected to approve today a $1.2 billion subsidy over five years for banks that make student loans. Senate passage is foreseen this week.
Part of the higher education spending bill, the 50-basis-point subsidy would help lenders deal with a sharp reduction in interest rates this year. A 1993 law has slashed the allowable rate by 80 basis points, effective July 1.
Congress must act quickly, because a temporary subsidy approved in the spring expires Thursday.
House Education Committee Chairman Bill Goodling announced Friday that lawmakers had reconciled House and Senate versions of the legislation. A congressional staff member said that to pay for the bill, lawmakers may raise by three to six basis points the fees that lenders pay to Ginnie Mae.
Industry officials applauded the overall package and said they were willing to live with a compromise on interest rates on consolidated loans.
"The legislation is not perfect, but it is a vast improvement over where we were in some proposals last year which called for deep, deep cuts," said Joe Belew, president of the Consumer Bankers Association.
Bankers backed a House provision that would have prevented the Education Department from charging a new, lower interest rate when former students consolidate their direct government loans. The government started charging a 7.46% rate this summer, whereas lenders were limited to 8.26%.
Under the deal, the government would be able to continue charging the lower rate until Feb. 1. After that, rates would be the same for the government and private lenders: the weighted average of the loans consolidated, rounded up to the nearest one-eighth of 1%, and capped at 8.25%.
To help the industry during the four months until Feb. 1, the government would temporarily reduce an annual offset fee that it charges lenders, to 62 basis points per loan from 105 basis points.
In most cases, that reduction would more than compensate for the lower government consolidated loan rate, an Education Committee staff member said.
John E. Dean, a lawyer representing the Consumer Bankers Association, disagreed but said the compromise was "not a bad deal."