Defying a veto threat from President Bush, the House of Representatives on Wednesday approved a bill to cut subsidies to student loan providers and use the proceeds to reduce interest rates and provide more money for Pell Grants and minority-serving colleges.

By a 273 to 149 vote, the House approved the College Cost Reduction Act, which would slash lender subsidies by $19 billion and redirect most of the savings to other higher education priorities. “This bill is a remarkable step forward in our efforts to help every qualified student go to college,” said Rep. George Miller, D-Calif., chairman of the Education and Labor Committee.

A similar bill has cleared a Senate committee and should come up for a floor vote later this month, said Sen. Edward Kennedy, D-Mass. He called the House vote a victory for students and families. “The time to put the needs of students ahead of the profits of banks is long overdue,” he said.

Historically Black colleges and Hispanic-serving institutions would gain significantly through new funding guarantees over the next five years, said Rep. Ruben Hinojosa, D-Tex., who chairs the House subcommittee on higher education.

“It is clear that minority-serving institutions will only grow in importance,” Hinojosa said. “This historic initiative will ensure that our nation has enough qualified graduates to fuel its knowledge-based economy.”

For Pell Grants, the bill would increase the maximum grant to $5,200 during the next five years. Student loan interest rates would drop from 6.8 percent to 3.4 percent, which can make college more affordable for low-income students.

More than 170,000 low-income, college-qualified students have not enrolled in college because of financial barriers, Hinojosa said.

Most Republicans voted against the bill, however, following a White House veto threat this week that may set the stage for future battles.

In a statement, Education Secretary Margaret Spellings strongly criticized the bill for failing to do enough for low-income students.

“The federal government’s role has always been to help those students most in need. Unfortunately, the House bill fails to meet that responsibility.”

Spellings criticized the bill for focusing most of its benefits on those already out of school – the main beneficiaries of a short-term cut in interest rates.

The bill devotes only 38 percent of its savings to low-income students, with only $5.8 billion dedicated to increase Pell Grants, the secretary said. By comparison, President Bush would commit nearly $20 billion in funding to support an expanded Pell Grant.

Despite the threat, Spellings signaled a willingness to work with Congress “to address these issues in a way that best meets the needs of America’s students.”

Other provisions of the bill will

Expand tuition aid to undergraduates who pledge to teach in public schools;

Provide loan forgiveness for students entering public service professions; and

Increase federal loan limits for undergraduates so they may not need costlier private sector loans, a sector of the lending industry that has come under criticism this year.