Bush signs law cutting student lender subsidies

BIDDING FOR LOAN RIGHTS

The law sets up a controversial test program that will require lenders to bid for the right to make federal loans to students' parents on a state-by-state basis.

It also offers forgiveness of student loan debt after 10 years for some borrowers who go into public service careers, such as being a teacher or police officer.

In addition, it reduces federal student loan default insurance to 95 percent in 2012, from the current 97 percent -- a change seen by analysts as potentially damaging to the student loan debt securitization market on Wall Street.

The law also raises a loan origination fee paid by lenders to the government, to 1.0 percent from 0.5 percent.

But the law does little to crack down on the kickback schemes and conflicts of interest at the center of a scandal this year that embarrassed lenders and college officials.

After investigations by New York Attorney General Andrew Cuomo and congressional committees, the scandal put the lending industry on the defensive and gave Democrats an opening to push through the subsidy cuts, lobbyists said.

But separate legislation to bar the questionable practices and make other changes -- such as shortening the long and confusing form that students must fill out to apply for college aid -- is not yet finalized.