WASHINGTON — The U.S. House of Representatives on Thursday passed legislation that would make the biggest changes in federal student loans in decades, driving banks out of the business and relying on an existing government program to provide that crucial source of college financing.
The bill, passed on a party-line vote of 253-171, would save $87 billion over 10 years by abolishing subsidies to banks that have been criticized as excessive, supporters said.
Most of the money saved would be used to increase the amount of aid given to low-income students in the form of Pell Grants.
"The choice before us is clear," said Rep. George Miller (D-Calif.), lead sponsor of the bill. "We can either keep sending these subsidies to banks, or we can start sending them directly to students."
The bill now goes to the Senate, which is expected to pass it. Here are some questions and answers about the legislation:
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How would the bill affect student loan recipients?
The bill would change the source of federal college loans in some cases, but it would not change their size.
Currently, a student can obtain low-interest loans that are guaranteed and subsidized by the U.S. government either from a federal program or from a bank. The bill would end those subsidies to banks. All federal loans would be offered by and repaid to the government program.
The bill also would simplify the complex federal application form for financial aid.
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Would the bill affect interest rates?
Yes. It would block a scheduled increase in subsidized loan rates to 6.8% in 2012 from 3.4% in 2011.
Instead, beginning in 2012, the rate would be variable. It would be linked to the rate on U.S. Treasury bills but would never be higher than 6.8%.
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How would the bill save money?
By ending subsidies to banks. The government would save about $87 billion over 10 years, according to the Congressional Budget Office.
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What would happen to that money?
The biggest chunk -- $40 billion -- would go to the Pell Grant program for low-income students.
Smaller amounts would be allotted to education initiatives such as grants to improve preschool education, renovate school buildings, improve community colleges, curb college dropout rates and fund programs to support historically black colleges and universities.
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How would the bill affect Pell Grant recipients?
