Washington to run student loans

By Jennifer Liberto, senior writer


WASHINGTON (CNNMoney.com) -- Congress passed a bill Thursday to make Washington the one-stop shop for cheap student loans and to boost need-based scholarships.

Starting July 1 nearly all federally backed student loans, like Stafford loans, will come directly from the federal government. The measure prevents private student lenders, including Sallie Mae (SLM, Fortune 500) and Nelnet (NNI), from making federally backed loans, although both have federal contracts to service government loans to students.

The bill passed 56-43 in the Senate and 220-207 in the House. It was a part of a budgetary "reconciliation" package that also included changes to the health care overhaul bill President Obama signed into law on Tuesday.

The student loan legislation has been a major priority for President Obama, especially since loans backed by the federal government are the single most common way students finance higher education.

The legislation, which has been the subject of a bitter lobbying battle between the administration and the industry, would save the federal budget $61 billion over 10 years.

Of that amount, $10 billion is earmarked to pay down the federal deficit and $36 billion would be directed to the Pell grant scholarships for lower-income students. That program is currently facing a historic shortfall due to record numbers of Americans who went back to school.

Medicare tax hikes: What the rich will pay

"These reforms will end a sweetheart deal that banks have enjoyed for decades, at the expense of students and families," said Rep. George Miller, D-Calif., who runs the House education panel. "These savings will be used to help students and families pay for college and reduce our deficit."

The move saves money by ending subsidies banks get to make the loans and by allowing the government to keep the difference between what it costs to make the loan and what borrowers are charged

Low-income students would benefit the most. The proposal would increase maximum Pell grant awards to $5,900 by 2017, up from $5,500 this fall.

But as a practical matter, most students seeking federal loans won't notice much of a difference. College financial aid offices would continue to work as intermediaries and many already administer direct government loans.

Republicans and the private student loan industry have opposed the legislation, arguing that the government shouldn't cut banks out of the business. They say that thousands of jobs at private lenders are at stake, including 2,500 at Sallie Mae (SLM, Fortune 500).

The foes of the legislation have said that the change will cause delays and disruptions in processing loans. They argued that the government doesn't have the manpower to take over the high volume of loans now originated by the private sector. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,514.37 65.12 0.40%
Nasdaq 4,161.46 39.91 0.97%
S&P 500 1,879.55 7.66 0.41%
Treasuries 2.73 0.01 0.18%
Data as of 2:38am ET
Company Price Change % Change
Bank of America Corp... 16.29 0.20 1.24%
Facebook Inc 63.03 1.79 2.92%
Micron Technology In... 26.18 0.86 3.40%
Comcast Corp 50.83 0.95 1.90%
Allergan Inc 163.65 21.65 15.25%
Data as of Apr 22
Sponsors

Sections

Alibaba's shopping sites account for 80% of online retail in China. Meet four successful merchants. More

The IRS is in damage control mode Tuesday after an audit revealed that it paid bonuses to employees who were in trouble over tax issues themselves. More

Upstart Aereo goes before Supreme Court justices in challenge by broadcasters who say TV streaming services violates copyrights. More

Schwinn, Trek and Cannondale are all iconic American bicycle brands. But none of them are made in the United States. More

Student loan borrowers are suddenly being thrown into default when the co-signer on their loan -- often a parent or grandparent -- dies or files for bankruptcy. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.