WASHINGTON — The House voted Thursday in favor of the biggest overhaul of college aid programs since their creation in the 1960s – a bill to oust private lenders from the student loan business and put the government in charge.
The vote was 253-171 in favor of a bill that fulfills nearly all of President Barack Obama's campaign promises for higher education: The measure ends subsidies for private lenders, boosts Pell Grants for needy students and creates grant programs to improve community colleges and college graduation rates, among other things.
"These are reforms that have been talked about for years, but they're always blocked by special interests and their lobbyists," Obama said Thursday during a rally at the University of Maryland.
"Well, because you voted for change in November, we're going to bring change in the House of Representatives today," the president said.
Ending loan subsidies and turning control over to the government would save taxpayers an estimated $87 billion, according to the Congressional Budget Office. Lawmakers would use that money to help make college more affordable, increasing the maximum Pell Grant by $1,400 to $6,900 over the next decade.
"The choice before us is clear. We can either keep sending these subsidies to banks or we can start sending them directly to students," said the bill's sponsor, California Democratic Rep. George Miller, chairman of the House Education and Labor Committee.
Yet the money also would be spent on things that don't help pay for college, such as construction at K-12 schools and new preschool programs.
And while the measure would increase Pell Grants, it would do nothing to curb college costs, which rise much faster than Pell Grants do.
In addition, the CBO says that when administrative costs and market conditions are considered, the savings from switching to direct government lending could be much lower, $47 billion instead of $87 billion.
Republicans warned that instead of saving the government money, as Democrats promise, the bill could wind up costing the government more money.
"Unfortunately, the numbers just don't add up," said Minnesota Rep. John Kline, senior Republican on the Education Committee.
Lawmakers split largely along party lines on the bill, with only six Republicans in favor and four Democrats against. The measure goes next to the Senate, where its fate is a little less certain.
Obama didn't get his way on one thing: The president proposed earlier this year to take Pell Grants out of lawmakers' hands entirely, making the program an entitlement like Social Security and Medicare, which would have cost an estimated $117 billion – more than lawmakers have to spend.
Under the measure, Pell Grants would rise slightly more than inflation over the next decade, increasing on average by about 2.6 percent yearly, according to the bill's sponsors. However, the grants would still depend on annual spending bills and could rise less than promised, as has happened in the past.
Lawmakers met him halfway on the labyrinthine college aid form; Obama proposed to eliminate it altogether when he ran for president, but the bill would keep the form and shorten it.
As consumers, college students probably wouldn't notice much difference in their loans, which they would get through their schools. However, officials at several colleges worry they may not be able to make the switch to direct government loans in time for next year, and Education Department officials said this week they do not intend to extend the deadline.
More schools administer federal loans through the subsidized loan program than from the government's direct loan program. Private lenders made $56 billion in government-backed loans to more than 6 million students last year, compared with $14 billion in direct loans from the government.
Republicans argued it is wrong to put the government in near-total control of student lending.
Many also worry about job losses in their districts. Private lenders employ more than 30,000 people whose jobs depend on the subsidized loan program, and the industry says many would be laid off.
Sallie Mae, the biggest student lender, has about 8,500 employees in the program and probably would lay off about 30 percent of those workers. It still will have contracts to service federal loans.
Its employees have held a series of town hall meetings and petition drives to involve local leaders in Pennsylvania, Florida, Delaware, New York and Indiana.
Democratic Rep. David Wu of Oregon said lenders still could make all the loans they want. "What will not happen anymore is making those student loans with taxpayer subsidies," he said.