Magazine article American Banker

Student Loan Bill Would Cut Profits, Lenders Contend

Magazine article American Banker

Student Loan Bill Would Cut Profits, Lenders Contend

Article excerpt

WASHINGTON -- A sweeping student loan reform bill introduced in the Senate this week could hurt private student lenders in several ways, banking representatives said Wednesday.

The Student Debt Relief Act, sponsored by Senate Health, Education, Labor and Pensions Committee Chairman Edward Kennedy, is a far broader package than the student loan interest rate reduction bill the House passed last week.

Though the House bill would cut $6 billion of lender subsidies, the Senate bill could make even deeper cuts, as well as create incentives for colleges to dump contracts with private lenders in favor of government programs, observers said.

Joe Belew, the president of the Consumer Bankers Association, said the Senate bill is "a very significant problem."

New budget rules in the House require lawmakers to offset costs along the way, and the Senate is expected to follow suit.

Besides interest rate cuts, the Senate bill would increase budgetary pressures by offering students bigger tax breaks and increasing government grants.

"The Senate measure is far more comprehensive than the House bill, which means it's going to be more expensive," said Jaret Seiberg, a financial services policy analyst at Stanford Washington Research Group. "The biggest concern is that the Senate is going to seek further reductions in lenders' subsidies to pay for some of these programs."

Banking industry representatives said the Senate bill is a road map to push private lenders from the student loan market. …

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