The House overwhelmingly approved legislation, 253 to 171, Thursday that would kill the Federal Family Education Loan Program, which lets banks and other lenders offer student loans at discounted rates in exchange for government subsidies.
The Senate has yet to act but is expected to follow suit; the Student Aid and Fiscal Responsibility Act would save $90 billion from the federal budget over 10 years and is a priority for the Obama administration.
The bill would wind down FFELP by July 2010 and require all 4,400 U.S. colleges and universities to switch to government direct-lending programs by then.
Though such lending is less profitable than in the past, banking groups said they still oppose ending the government guarantee program.
"The banks would like to continue to make student loans. They want to do it for reasons other than profitability. It's about customer relationships," said Harrison Wadsworth, a counsel for the Consumer Bankers Association and principal at Washington Partners LLC.