While health care reform dominates the mainstream news cycle, Congress has been quietly making fundamental changes to the federal student loan and grant system.

The Student Aid and Fiscal Responsibility Act (H.R. 3221), was passed by the House of Representatives in a largely party-line vote.

H.R. 3221 eliminates federal subsidies to private student loan providers, and uses the saved money to increase the number of federal Pell Grants awarded to needy students. In effect, students would borrow loan money directly from the United States Treasury instead of from private lenders. The act would allocate money for modernization and expansion projects to public schools and community colleges, as well as funding environmentally friendly energy grids on campuses across the nation.

The Congressional Budget Office (CBO) estimates that the bill will save taxpayers $87 billion over the next ten years. Representative George Miller (D-CA) sponsored the bill, citing fiscal waste and student need. “Today the House made a clear choice to stop funneling vital taxpayer dollars through board rooms and start sending them directly into dorm rooms,” said Representative Miller. The $10 million saved by this bill has been earmarked for federal budget deficit reduction, while increases to Pell Grant and student loan programs are budget neutral, according to the CBO.

Critics of the bill, such as Representative Dan Burton (R-IN), oppose this legislation because student choice is restricted in choosing lenders. In addition, it is estimated that jobs lost in the banking sector due to the reallocation of federal funds could be as high as 30,000 nationally. While the bill sailed through the House of Representatives, the future of H.R. 3221 is uncertain in the Senate.

Links for the web:

Mentions in the Congressional Record

Full Text of Debate On House Floor