Bill would spend more to make college affordable

President Barack Obama's plan to dramatically increase college student aid took its first step Wednesday on what could be a rocky path through Congress.

A key lawmaker proposed a bill to boost Pell Grant scholarships for low-income students by linking them to inflation for the first time since the program began.

House Education Committee Chairman George Miller's legislation would pay for the expansion by eliminating a massive program of subsidies for private college loans - an idea opposed by lenders and their many supporters on Capitol Hill.

In a statement, the president said the bill will end giveaways to special interests and save taxpayers money.

"Chairman Miller and I are working to end the wasteful subsidies that are given to banks and private lenders for student loans," Obama said.

His education secretary, Arne Duncan, said the government should spend education dollars on students and not on private lenders.

Under the bill, subsidized loans would be replaced by the government's existing direct loan program.

Besides Pell Grants, $10 billion of the estimated $87 billion in savings from ending the subsidized loan program would go toward early childhood education, increasing the number of poor children with access to pre-kindergarten, among other things.

Private lenders made $56 billion in loans to more than 6 million students and parents under the subsidized program, which is called the Federal Family Education Loan program.

But the public-private partnership has begun to crumble under the weight of the recent credit crisis. Hundreds of lenders have stopped making federally backed loans, and hundreds of colleges that had only offered subsidized federal loans have signed up for direct loans.

Even so, the end of the program would cost lenders tens of billions of dollars, and some lawmakers worry that would mean job losses in their districts. The biggest providers are Sallie Mae, based in Reston, Va.; Citigroup Inc.'s Student Loan Corp., based in Stamford, Conn., and Nelnet Inc., based in Lincoln, Neb.

A coalition of lenders, America's Student Loan Providers, said the door is still open for "a more sensible approach."

"These aren't empty words, given the broad agreement in Congress that students, families and schools are better served by nonprofit, state-based and for-profit organizations committed to providing superior service and investing in continuous innovation," said Kevin Bruns, spokesman for the group, whose members include the big student lenders.

The senior Republican on the House Education committee, Rep. John Kline of Minnesota, said Obama and Democratic leaders would do better to help kids by getting more private capital into the market.