WASHINGTON — House lawmakers voted for a major shake-up of the student loan industry Sunday, ending most private banks' ability to originate lending in the market.
Ending fees paid by the federal government to banks who originate loans will save the taxpayer $68 billion over 10 years, the Congressional Budget Office has estimated.
The overhaul was added to sweeping health care legislation that was narrowly approved Sunday. The portion of the complicated legislative package that includes the student loan changes still must be passed by the Senate.
Those savings will be reinvested in boosting grants for poor students, making a $10 billion payment to the deficit and diverting $9.1 billion to help pay for the Democrats' ambitious health care plan.
The total savings forecast was $19 billion less than the CBO's original estimate of $87 billion in savings made last year. Critics in the lending industry have argued the real savings could turn out to be much lower depending on future interest rate and loan default levels.
A handful of moderate Senate Democrats have expressed unease about rolling the student loan changes into the health care plan. It's possible some may end up voting against the combined package. Given the Democrats have 59 senators, they can afford to lose the votes of up to nine members.
The changes would see the Department of Education become virtually the sole provider of student loans through a government-backed program that accounts for the vast majority of loans made.
In New Dakota a state-owned bank which is the largest provider of loans in that state will still be allowed to originate loans.
Elsewhere, not-for-profit and private banks will be able to bid to service the loans after they're made by the federal government.
Lenders have fiercely opposed the changes, arguing they are more efficient at administering the program. They have warned about heavy job losses as a result of the legislation.
Led by SLM Corp., better known as Sallie Mae, the largest student lending firm, the loan industry circulated their own overhaul version, but it failed to gain much traction with Democrats.