Washington

Republican and Democratic lawmakers locked horns on Wednesday over a proposal that would diminish the appeal of a program that allows borrowers to combine and refinance their federal student loans.

Under the plan, borrowers who seek such consolidation loans would no longer be able to "lock in" fixed interest rates for up to 30 years, as they are able to do now. Instead, the borrowers would be charged the same rate as all other student-loan recipients are charged in a given year. Currently, that rate varies from year to year, based on market conditions.

Republican leaders of the U.S. House of Representatives Committee on Education and the Workforce are considering including the plan in legislation to renew the Higher Education Act, the law that governs the federal student-aid programs.

Speaking at a hearing before the committee, its Republican chairman, Rep. John A. Boehner of Ohio, noted that the federal loan-consolidation program costs the government billions of dollars in subsidies to keep the costs of the loans cheaper for borrowers. That money, he said, would be better spent providing more benefits to current and future students, in the form of lower borrowing fees or higher loan limits, rather than helping college graduates repay their loans.

"We are all aware of the budget realities facing this Congress," Mr. Boehner said. "With limited resources, we must establish priorities, and I believe students should be priority No. 1."

But pushing the proposal carries political risk. The loan-consolidation program is extremely popular with middle-income and upper-middle-income borrowers, particularly at a time when the interest rate on student loans has dropped to an all-time low of 3.42 percent.

In 2002, the Bush administration was forced to withdraw a similar proposal just a few days after offering it, amid complaints that the plan would deny hundreds of thousands of student-loan borrowers the chance to refinance their loans at a lower interest rate and save them thousands of dollars (The Chronicle, May 10, 2002).

At the hearing, Democrats blasted the Republicans for reviving the plan. "This proposal will heap thousands of dollars in increased interest costs on the backs of students and recent college graduates," said Rep. Dale E. Kildee of Michigan.

Mr. Kildee said that while he supported eliminating the student-loan fees that borrowers must pay, the new benefits should not be financed at the expense of those who wish to consolidate their loans.

"Our goal should be to expand our higher-education programs, not move resources around an already paltry pie," he said.

Officials with the presidential campaign of Sen. John F. Kerry of Massachusetts, the presumptive Democratic nominee, also took the opportunity to score political points. Soon after the hearing concluded, they held a conference call in which Richard W. Riley, President Bill Clinton's education secretary, attacked the Republican plan.

Mr. Riley accused the Republican lawmakers of putting the priorities of student-loan industry officials -- many of whom have been lobbying to make the interest rate on consolidation loans variable -- ahead of students (The Chronicle, July 19, 2002).

"Instead of cutting student loans and increasing the amount of money students owe to banks," said Mr. Riley, "we should be cutting bank subsidies and increasing the amount of grant aid going to students and families."

But at the hearing, Republican lawmakers said that Democrats were being shortsighted if they did not see the danger that the consolidation program's continued growth poses to the future of the government's student-aid programs.

The government currently makes up the difference to lenders when the interest rate set for a given year exceeds the rate that borrowers in the program have locked in on their consolidation loans. For example, for all of the borrowers who are refinancing their loans this year, the government will be required to make payments to lenders -- for up to the next 30 years -- every year that the interest rate on student loans rises above 3.42 percent.

If the consolidation program's rapid growth goes unchecked, the government's costs will skyrocket and, as a result, Congress might have no choice but to cut other student-aid programs to find the money, the lawmakers said.

"If we leave the consolidation-loan program on autopilot," Mr. Boehner said, "the cost could balloon, taking billions of dollars away from the very low- and middle-income students we are seeking to help."