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Fight looms over student loan cuts

Senate takes up bill to slash $12.7 billion from education aid

WASHINGTON -- A bill that would slash student loan funding by record levels is headed for a showdown today in the Senate, where lawmakers are closely divided over whether to cut $12.7 billion in education aid along with $13.3 billion in cuts to Medicare, Medicaid, and children's health insurance before leaving town for the holidays.

The bill would cut the amount of loan money guaranteed by the federal government, pushing up interest rates. It would also impose a 1 percent insurance fee on student loans. Proponents said the changes would control federal spending and help chip away at the federal budget deficit.

But critics said the cuts would overly burden students, who already borrow an average of $18,000 to finance their college educations. The United States Student Association estimates that the changes will add several thousand dollars in interest payments to student bills.

''This bill abandons the government's longtime commitment to ensuring that the neediest students get the most help," said Senator Edward M. Kennedy, Democrat of Massachusetts. ''It imposes so many hurdles to new aid that it is sure to leave behind those who need our help the most to stay in school."

With many lawmakers balking at deep cuts in social spending on the eve of an election year, Senate Republican leaders delayed a vote yesterday on the budget package until at least today.

The possibility of a 50-50 tie loomed, and Vice President Dick Cheney yesterday cut short his Middle East trip so he could be available to cast a tie-breaking vote. On the Democratic side, Senator Christopher J. Dodd of Connecticut raced back to Washington last night, three weeks after undergoing knee-replacement surgery.

A version of the budget bill passed the Senate 52 to 47 last month, but several senators have switched their votes because of subsequent changes in the bill.

With five of the Senate's 55 Republicans indicating they would vote no, both sides said a tie appeared possible, meaning Cheney would cast the deciding vote in favor of the budget cuts.

Senate Budget Committee chairman Judd Gregg, Republican of New Hampshire, predicted that the measure would pass, but neither side was sure of the votes late yesterday.

Adding to the frenzied atmosphere in the Capitol, a highly anticipated vote is expected today on drilling in the Alaska wilderness. In addition, a partisan standoff has left key provisions of the Patriot Act in danger of expiring at the end of the year, with both sides pointing fingers about who's to blame.

''It all hits the fan tomorrow," Senator Gordon Smith, Republican of Oregon, said yesterday. Smith is opposing the budget cuts in addition to drilling in the Arctic National Wildlife Refuge.

The budget package would net nearly $40 billion over five years in savings to the budget, although Democrats said the savings would be erased by a tax-cutting package planned for a vote early next year.

Some $10 billion would be raised by auctioning off permits for wireless television, while an additional $3.6 billion would be collected by the government through increases in fees paid by employers for federal pension insurance.

The biggest legislative battle has been over the proposed cuts to health and education, with Democrats and a handful of Republicans arguing that the budget should not be cut in ways that harm the nation's elderly and poor while making it harder for students to put themselves through school.

The measure was approved by the House early Monday morning, and lawmakers there said they had little chance to read the bill before being forced to vote on it.

''You're going to make every middle-class family in America have to pay more to get their kids through college, so you can fatten up somebody who is doing historically well," said Representative John Tierney, a Salem Democrat who serves on the House Education and Workforce Committee.

Senator Ben Nelson, a Nebraska Democrat who had previously supported the budget-cutting package, said yesterday he had changed his mind because the current bill would pass health and education costs to the states. ''This is no way to balance a budget," Nelson said.

Republicans said the cuts represent modest attempts to rein in spending on federal entitlement programs, which are contributing to record budget deficits.

''It's really a simple question -- pay now or charge it to your grandchildren," said Senator Tom Coburn, Republican of Oklahoma and the chamber's most vocal advocate for lower federal spending. ''We were sent here to make the hard choices. This bill is a start. It should go much further."

The bill would impose the greatest single cut in history to higher education by restructuring student loans. Currently, the federal government guarantees student loans, allowing lenders to offer lower rates.

But under the bill before the Senate, lenders would have to give the federal government back a portion of the interest they collect from borrowers, meaning the money could not be used to subsidize new loans.

Student borrowers would be forced to pay a fixed rate of 6.8 percent on loans, and parents would have an interest rate cap of 8.5 percent, up from 7.9 percent. Further, Pell Grants would remain capped at $4,050 per student per year, despite earlier promises by the Bush administration to raise the cap to $5,100.

Gregg, the budget committee chairman, said that despite the cuts, the restructuring of the student-loan program would earmark $3.75 billion for a new program to help students who study math and science. The bill also would set aside $1.9 billion to forgive the student loans of special-education teachers, and of students who serve in the military after college.

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