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House Unanimously Votes for Closing Loophole in Student Loan Subsidies

By Greg Winter

The New York Times -- The House unanimously passed a bill Thursday to close loopholes that allow student loan companies to collect hundreds of millions of dollars in subsidies, and the Senate was expected to do the same as early as Friday.

After months of debate, the House settled on a bill that would use the money to help teachers instead of student loan companies. By some estimates, it could generate as much as $270 million in savings, to be used to help pay off the student loans of math, science and special education teachers who commit to working in schools with low-income students.

For all the support for the legislation, introduced by Republican leaders at the end of the session, the dispute over the government subsidies appeared far from finished. Even as they voted for it, some Democratic members of Congress contended that the legislation only partly closed the loopholes that had enabled lenders to collect well over $1 billion in subsidies.

The bill is a stopgap measure to hamper the growth of a subsidy Congress tried to eliminate more than a decade ago. Because of loopholes, lenders are able to collect 9.5 percent interest on huge loan portfolios, even though prevailing rates have dropped and students now are paying only about 3.4 percent. The government makes up the difference.

The bill closes at least some of these loopholes, but only for a year, while Congress takes on the task of essentially rewriting many of the nation’s higher education laws. And it does not close all of them, leading many lawmakers to worry that student loan companies will simply change their strategy and take advantage of the options left open to them.

Complaints of waste and abuse expressed by experts inside and outside the Department of Education have led to an audit of the loan program by the department’s inspector general. Some department staff members also say that employees who are normally part of the approval process have been excluded from the decision to continue paying student lenders big subsidies even as concerns over their legitimacy have been raised.

The nonpartisan Government Accountability Office reported last month that the department had the power to cut off the subsidies, but had chosen not to use it. The department has disputed that finding, and Rod Paige, the education secretary, applauded the House vote, describing the action as “the right -- and only -- way to go to immediately address the problem.”