Despite some Republication opposition, The House of Representatives voted 253-171 to approve a bill Thursday that would stop lending from the bank-based Federal Family Education Loan Program in favor of the Department of Education-run Federal Direct Loans Program by July 2010. The bill, known as the Student Aid and Fiscal Responsibility Act of 2009, would also increase the current maximum Federal Pell Grant from $5,350 to $5,550 and provide for annual increases to the grant in the years to follow through a $40 billion pool of funding over the next decade.

The bill is expected to have more of a fight when it comes before the Senate, where even Democrats have voiced concerns about the potential for job losses in states that headquarter private loan agencies. Many Republican lawmakers argue that the student loan industry has served college students well, and oppose the government takeover.

Amendments to the bill that failed before its passage looked at ways to allow the private sector to continue student lending as a way to offer the college-bound more choice in financing their educations. Amendments that passed included strengthening support services to borrowers and making part-time students eligible for Year-Round Federal Pell Grants, according to the National Association of Student Financial Aid and Administrators.

The bill would also:

• use the projected $87 billion in savings from the move to direct lending to expand aid to students and colleges.
• provide $10 billion in grants to community colleges as part of the Obama administration's American Graduation Initiative, a project that aims to nearly double the number of two-year institutions across the country.
• overhaul the Perkins Loan program and expand its funding from $1 to $6 billion per year.
• provide $8 billion in grants targeting early-learning programs over the next 10 years.
• make interest rates on need-based federal student loans variable starting in 2012.
• simplify the financial aid application process.

The legislation has broad support from the Obama administration. The president called the bill a "historic set of reforms," adding in a statement that the bill "will end the billions upon billions of dollars in unwarranted subsidies that we hand out to banks and financial institutions." Currently, about one-forth of students' loans come through the government's direct loan program.

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