After a warning from Rep. Jim Leach, negotiators seeking to resolve differing House and Senate versions of the student loan bill have dropped a proposed amendment that would have benefited Sallie Mae.

The House Banking chairman complained in a letter late last week to Education Committee Chairman William F. Goodling about the amendment, which reportedly would have permitted Sallie Mae to affiliate with a bank.

Rep. Leach said the plan would violate a 1996 law barring financial institutions from affiliating with government-sponsored enterprises. (Though Sallie Mae converted to a private company last year, it still has a GSE subsidiary that must be phased out within eight years.)

"Care must be taken to ensure that institutions which receive privileges under a federal charter not be given unfair marketplace advantage over financial institutions which lack such privileges," Rep. Leach wrote.

House and Senate negotiators are "99% done" melding the two bills, a banking industry lobbyist said. The bill could be approved by the full House and possibly the Senate by the end of the week.

Lawmakers are still trying to finalize funding for the bill, which would subsidize bankers for a cut in interest rates on student loans. The legislation probably will include a compromise that would let the government until Feb. 1 charge a lower interest rate when former students consolidate their loans.

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