President Obama signed legislation Tuesday that takes private lenders out of the business of making federal student loans.
The bill, which lawmakers coupled with health-care reforms in the budget reconciliation, ends the subsidies banks had received to participate in the Federal Family Education Loan Program. Instead, the government will originate the loans directly starting July 1.
"We are finally undertaking meaningful reform in our higher-education system," Obama said during the bill signing at Northern Virginia Community College. "By cutting out the middle man, we'll save American taxpayers $68 billion in the coming years, $68 billion. That's real money — real savings that we'll reinvest to help improve the quality of higher education and make it more affordable."
The bill had constant opposition from student lenders and Republican lawmakers, claiming the inability to originate federal loans would lead to job losses at financial institutions.
"Today, the president will sign not one, but two job-killing government takeovers that are already hurting our economy," House Republican Leader John Boehner of Ohio said in a press release, referring to the student loan and health-care changes.
In addition to removing banks from the FFELP, the bill increases resources for Pell grants. However, student loan giants Nelnet Inc. and SLM Corp. — better known as Sallie Mae — will keep their contracts with the government to service federal student loans.
"For a long time, our student loan system has worked for banks and financial institutions," Obama said. "Today, we're finally making our student loan system work for students and our families."