House backs Obama's bid to revamp student loans

WASHINGTON (Reuters) - The Democratic-led House of Representatives on Sunday approved President Barack Obama’s bid to implement what would be the biggest overhaul in decades of the federal student loan program.

Jason Perri (C) relaxes with sunglasses and without his mortarboard as he celebrates receiving a Masters in Business Administration degree from Columbia University during this year's commencement ceremony in New York on May 18, 2005. REUTERS/Chip East

Under the legislation, federal subsidies to private student loan lenders would stop and the government’s role in lending would increase -- creating billions of dollars in projected savings that would go largely in grants to needy students.

The measure, opposed by private lenders and critics of an expanding federal government, was included in a package of proposed changes to an overhaul of the U.S. healthcare system.

The House passed the package after giving final approval to the healthcare bill that is ready for Obama to sign into law.

The package of changes now goes to the Democratic-led Senate for needed concurrence. A vote is expected this week.

The House-passed measure would halt a 1965 program that has private financial institutions make loans for college tuition, with the government covering the risk of default.

Mostly Republican critics complain the action would amount to an unwarranted government takeover of the program and reduce students’ options in securing a loan.

But primarily Democratic backers argue it would eliminate the middle men -- private lenders -- from the process, allowing the government to save billions of dollars.

The measure would cut banks and student loan giant Sallie Mae out of most of the $92 billion college student loan business and require that all federal students loans originate with the government.

Private lenders would still have a role in servicing loans, such as helping collect them. Direct federal loans, unlike loans by banks, must be serviced by U.S. workers.

“This is good for students, taxpayers and American jobs,” said House Education Committee Chairman George Miller, a Democrat.

Nonpartisan congressional budget analysts project that the measure would save about $61 billion over 10 years. Savings would go increased federal grants to the neediest students as well as to other education programs, including funding of community and historically black colleges.

While the House approved the measure last year, it stalled in the Senate in the face of a threatened Republican procedural hurdle that take 60 votes in the 100-member chamber to clear.

Democrats, however, now plan to bring up the measure in a manner that would require only a simply majority, 51 votes, to pass.

“It’s a very bad idea,” Senate Republican Leader Mitch McConnell said in denouncing the proposed student loan overhaul.

“We now have the government running banks, insurance companies, car companies” and Democrats want the government to now “take over the student loan business,” McConnell said.

House Education Committee Chairman Miller defended the proposal, saying, “We can reform the student loan program by taking these wasteful subsidies (to private lenders) -- and redeem the savings for millions of families and students who want a shot at attending college.”

Reporting by Thomas Ferraro, editing by Deborah Charles