President Bush has dropped his threat to veto key student-aid legislation, saying a compromise introduced on Wednesday had responded to his call to “significantly increase funding for Pell Grants.”

The legislation, known as a budget-reconciliation bill, would slash subsidies to lenders in the government’s guaranteed-student-loan program and use the savings to reduce the federal deficit and increase student aid. Given its broad political appeal, the bill is likely to pass by a veto-proof majority in both chambers of Congress.

The president had twice threatened to veto the bill, complaining that it did a poor job of delivering aid to needy students. In a pair of “statements of administration policy,” issued in July and August, he criticized Congress for creating a bevy of new entitlement programs and not increasing the maximum Pell Grant to the level he had requested.

In crafting a compromise bill, lawmakers aimed to appease Mr. Bush. They cut the number of new programs from 10 to 4, and they raised the maximum Pell Grant to $5,400, the level contained in his budget request.

Still, the administration was not entirely satisfied. This evening the Education Department issued a statement saying Congress had “missed an opportunity to devote even greater funds to needy students.”

“The bill creates new mandatory programs that will cost taxpayers approximately $1-billion over five years — money that would be better spent by further increasing the Pell Grant maximum,” said Samara Yudof, a spokeswoman for the department. —Kelly Field