The health-care bill that just passed the House includes some big changes to how federally guaranteed student loans work. The shift is projected to save the federal government about $60 billion over 10 years.
Until now, private lenders (including banks and Sallie Mae) have been able to make student loans that are guaranteed by the federal government, as long as they adhere to terms set by the government. When a student pays off the loan, the bank profits from the interest. When a student defaults on a loan, the government pays the bank. (Here's more on the program, which includes Stafford loans.)
In the new system, the government will lend all of that money directly to students. The government will still pay private companies to service the loans — that includes collecting payments and trying to keep people from defaulting.
The shift shouldn't make much difference for students, according to Justin Draeger of the National Association of Student Financial Aid Administrators.
But cutting out the middle man will save the government $61 billion over the next 10 years, the CBO estimates. (The government will also incur $5 billion in new administrative costs.) About two thirds of the savings will go toward grants for low-income students, and about a third of it will go toward reducing the deficit.
By the way, if you're wondering what student loan stuff was doing tucked into a big health-care overhaul, read the last couple paragraphs of this blog post from the NYT.