If signed into law, the legislation would deal a blow to the student loan industry, which has been racked by scandal in recent months, and allow Democrats to claim a partial victory on their campaign pledge to halve rates on federally-backed student loans.

“With this bill, the Democratic Congress is delivering on our promise to make college more affordable and accessible for all qualified students. I urge the president to join us in this historic investment in our students – and our future – by signing this bill,” Miller said in a statement released following the negotiations to reconcile the House and Senate versions of the bill.

“By making college more affordable for young Americans, we not only open doors of opportunity for them, but we equip a new generation of Americans to compete and win in the global economy,” Kennedy said.

The legislation reduces rates on subsidized student loans from 6.8 percent to 3.4 percent over four years, and authorizes roughly $11 billion in new funding to raise the maximum amount for Pell Grants that go to low-income students. Non-subsidized Stafford loans will remain at 6.8 percent.

It also sets aside $1 billion to help needier borrowers avoid excessive debt burdens, and authorizes more than $1 billion to pay for loan forgiveness for former students after ten years of public service, investments in minority-serving institutions and tuition assistance for undergraduates who commit to teaching in high-poverty areas.

In addition, the legislation adopts the Senate version of a pilot auction plan in which lenders will bid on PLUS loans to parents.

To pay for these provisions, the bill slashes lender subsidies by 0.55 percent for commercial lenders and by 0.40 percent for non-profit lenders. It scales back the federal guarantees on private-lender student loans from 97 percent to 95 percent after five years and phases out the 98 percent backing enjoyed by most large lenders.

The legislation includes $750 million in deficit reduction as mandated by the 2008 budget resolution.

Democrats are pushing for a vote later this week or early next week on the final legislation. The final bill has good odds of passing Congress: The Senate passed the legislation by a veto-proof margin and the House approved its version on a 273 to 149 vote.

Whether the bill will be signed into law is less certain: Bush voiced his strong opposition to the new entitlements included in the House version, which he threatened to veto. But lawmakers reined in some of this spending in the final bill.

Lobbyists for the student-loan industry denounced the legislation, saying the cuts were so draconian they will drive many lenders from the business of lending to students. At a minimum, the cuts will force them to scale back on borrower benefits, they argued.

“Many major players will leave the industry. Some will stay in it,” one lobbyist predicted. “Clearly, it’s not going to be a profitable business, at least in a meaningful way. If we stay in it, it will be de-emphasized.”

John Dean, who lobbies for the Consumer Bankers Association, singled out the auction plan for particular criticism. He argued that forcing lenders to compete for the lowest subsidy would harm borrowers. “The auction destroys the retail marketplace of parent PLUS loans by shifting the focus from the consumers to getting the cost for the Department of Education as low as possible. It’s an unambiguous disaster,” he said.

Terry Hartle, senior vice president of the American Council on Education, argued that the legislation’s impact would be hard to predict because it is so sweeping.

“Congressional Democrats are poised to take a dramatic step to assist millions of low-income students and families. But they are also poised to make an equally dramatic cut in the subsidies paid to lenders to encourage them to make loans,” he said.

Student-loan industry lobbyists have warned over and over that the largest student lender, Sallie Mae, now known as SLM Corp., would stand to gain from the legislation because deep cuts to the lender subsidies would drive out all its competition. Yet the student loan giant fought hard against the cuts, spending huge sums on lobbying lawmakers.

Democrats made halving rates on student loans part of the “Six for ‘06” agenda to win back Congress in the last election. The rate cuts in the legislation affect about half of the volume of federally backed student loans.

Earlier this year, President Bush helped set the stage for the legislation when he called for cutting lender subsidies by 0.50 percent in his 2008 budget. Then, a wave of scandals involving improper ties between schools and lenders hit the student loan industry, shifting the political environment against it. A year ago, such deep cuts in federal support for student lenders were “unthinkable”, Hartle of the American Council on Education said.