If not for Hurricane Katrina grinding all business in Washington to a stop, they might have gotten their way - and raised the price of attending college by $10 billion a year, costing the average student more than $6,000 for more expensive student loans.

But student loan legislation is back on track, with legislators expected to create a new education bill in the next two weeks. In the meantime, lots of people are wondering why student loan borrowers can't have more choice, lower interest rates, better terms, and more competition among lenders. Especially when it also means reducing the federal budget deficit.

This heightened awareness of student loan programs comes every five years or so when Congress reauthorizes the Higher Education Act. Since the last legislation, the student loan market has been hit with what Citizens Against Government Waste calls a "perfect storm" of more students going to college, tuition doubling and the annual volume of student loans tripling to $50 billion - all in less than ten years.

Last year, the Student Loan Marketing Association, the former federal agency that controls still controls the vast majority of the industry with more than $100 billion in student loans, went private, and has quietly become one of the most profitable companies in the United States.

So a lot has changed since the last time Congress looked at student loans.

And a lot more change is on the table. Chief among these changes is what to do with student loans in an era of changing interest rates. Many students and parents want the option to refinance their loans at a lower, fixed rate over a longer period of time with the lender of their choice. Just like any other loan.

Today, some can, and do. But current law says most cannot: If students get their loans from a single lender, they cannot change that lender - even if another lender offers them better rates, terms or service. It's called the Single Holder Rule, and it helps ensure Sallie Mae and the other big lenders keep their customers safe from competition.

It works.

The same law also says most borrowers can only consolidate their loans once. It worked, too, until some students and parents recently discovered a loophole they could use to move their loans to a lender offering better rates.

But the big lenders are determined to use their legislative muscle to protect that business.

Student loan experts agree that this kind of anti-competitive practice would not be allowed in most business situations. But this is not a business school seminar: This is a real world situation with one of the most profitable financial businesses in America.

"Big lenders that participate in the student loan program do not like the federal consolidation program because the lender is forced to pay fees and taxes to participate and because it increases competition in the market - as most students (but not all) can shop around to find the best deal and service for their loans," said Sarah Wasserman of the United States Student Association in front of a congressional committee. "Due to low interest rates in the past few years, more and more students have consolidated their loans, increasing the likelihood that these students will switch lenders. The lenders that hold the lion's share of the total outstanding student loan debt would like to eliminate the current low-fixed rate benefit in order to do away with the competitive market so that they can protect their portfolios and profit margins," Wasserman said.
"Most big financial institutions don't like consolidation loans because they're less profitable," said Barry Morrow, CEO, Collegiate Funding Services, in congressional testimony. "Opponents of the consolidation loan program claim that the program benefits primarily doctors, lawyers, and other high-income professionals. However, data
we are providing to the Committee shows quite the opposite. Less than 4% of consolidators are doctors and lawyers, and nearly 20% are nurses and teachers. Their average age is only 27. This is not a program that favors the affluent."

Wasserman, Morrow, and many others say students and their parents should be allowed to refinance their student loans whenever they want, with whomever they want, at whatever rates and terms the market will bear. Just like a home loan. But first, parents and students will have to change some hearts and minds in Congress.

New legislation passed by the House of Representatives would give the students the choice between fixed and variable rate consolidation loans, but with a twist: The loans would carry more fees and a higher interest rate, removing a major the incentive to consolidate in the first place.

Another provision would eliminate a student's right to consolidate their loan before leaving school in order to lock-in lower rates.

"The new legislation is clearly toward big lending institutions and their hefty profits, not students and their thin wallets," said Congressman George Miller of California.

The Senate version is not as onerous. But it would fix the rate on all new loans at 6.8% for students and 8.5% for parents. Hardly a bargain in today's market, and if market rates should go down over the coming years, students and parents would be paying a hefty premium to scrape together the money needed for school.

In a company newsletter, Sallie Mae executives said they support the move from a fixed to a variable interest rate consolidation program even though it will actually diminish their profits.

But many do not believe that - at least Sallie Mae's own shareholders and Wall Street don't. The stock has increased almost ten percent in value since the July passage of this proposal in the House.

Sallie Mae and other large student loan lenders say that allowing students to lock in lower interest rates with other lenders will increase the cost of the program to the federal government. The lower the interest rates, the higher the subsidy, they claim, ignoring the fact that many of their competitors are willing to offer lower rates without the government having to foot the bill.

More consolidation of student loans can also reduce the cost of the program to the federal government. The General Accounting Office reports that people who consolidate their loans are three times less likely to default on their student loans - even though their loan balances are twice as large. That is a "potent default prevention tool" said Morrow, resulting in significant savings to the federal government.

Many borrowers are realizing there's lots of fine print in their federally guaranteed student loan deals that are not there in other types of loans.

According to the New Hampshire newsweekly, The Wire, Diana Lamphiere, an attorney, had over $100,000 in debt when she graduated from law school in 2001. When the time came to consolidate her loans and lock in a fixed interest rate, she did so, figuring that she could always refinance again when interest rates dropped. However, she didn't realize that education loans could only be consolidated once, and she has since been stuck with an 8.25 percent rate ever since.

"I think all of us realize that we borrow this money and we have a responsibility to pay it back," Lamphiere said. "But when the fact that your payment is going toward interest, and the going interest rate is much lower than the interest that you're paying, that seems fundamentally unfair."

Lamphiere has started a website - generationdebt.org - to let people know about the changes. In the meantime, other lenders are begging Congress for the chance to foot the bill on offering lower rates than 8.25%.

But some in Congress are hesitating for reasons that can only be described as more political than economic.

What a business.

Nancy Fay is a California-based freelance business writer.