Senate Democrats introduced a bill on Tuesday that would slash government subsidies to student-loan companies and use the savings to pay down a portion of the federal deficit and create two new grant programs aimed at helping low-income students attend college.

The bill-- a "budget reconciliation" measure that will be considered by the Senate education committee today, along with legislation introduced on Monday that would reauthorize the Higher Education Act -- would also cap the amount of money that student borrowers in income-contingent repayment plans must pay each month and expand loan forgiveness to more borrowers...

In another arena, the reconciliation bill also provides new details on the Senate's plan to test the concept of using an auction to set student-loan subsidy rates. Currently, subsidies are set by Congress.

Under a pilot program outlined in the bill, lenders would bid for the right to originate federal Parent PLUS loans at all the institutions in a given state. The two lenders that agreed to accept the lowest federal subsidies would "win" the auction, gaining the right to make loans in a given state for the next two years...

Michael Dannenberg, director of education policy at the New America Foundation, a public-policy institute, said an auction would remove politics from the process of setting student loan subsidies, and potentially save taxpayers money.

"Student-loan auctions can take the backroom politics and a good amount of corruption out of the student-loan system," he said. "Done right, they are quintessential good government."

For the complete article, please visit The Chronicle of Higher Education website.