Not-A-Pundit: The Renaissance

WASHINGTON (Dow Jones)–The U.S. Senate on Thursday repealed a rule that limits the lenders from which borrowers can consolidate student loans.

The 98 to 1 vote clears the measure, which was added to a $94.5 billion emergency spending bill to pay for the wars in Iraq and Afghanistan and aid to Gulf Coast hurricane victims, for President George W. Bush’s expected signature. The bill passed the House, 351-67, on Tuesday.

The bill repeals the so-called single lender rule that requires students to seek a consolidation loan from one of the lenders that had originated the student loans they are seeking to consolidate.

Congress authorized lenders to offer federally guaranteed and subsidized consolidation loans as a way to allow students to simplify student loan repayment.

Consolidation loan rates are fixed at the weighted average of the loans being consolidated, which allows students to lock in an interest rate.

Smaller, start-up lenders pressured Congress to give them better access to the student loan market while large lenders opposed the change, arguing that it would allow new lenders to cherry-pick loans that the larger lenders had originated.

Smaller lenders say the change will increase competition in the student consolidation loan market and give borrowers more choice.

The change is likely to further fuel the consolidation market, where lenders are already rushing to entice students to sign up for fixed-rate consolidation loans before student loan rates jump on July 1.

By John Godfrey, Dow Jones Newswires