Hillarysworld

This administration is now taking over the student loan market:

WASHINGTON (Dow Jones)--The U.S. House of Representatives approved legislation Thursday that would effectively end private-lender involvement in the student loan market, establishing the federal government as the sole provider of college loans.

The bill introduces sweeping changes to the U.S. higher education system, and serves as the third central plank of U.S. President Barack Obama's domestic agenda. It aims to make college more accessible and improve graduation rates.

"This bill will end the billions upon billions of dollars in unwarranted subsidies that we hand out to banks and financial institutions, and will use that money to guarantee access to low-cost loans," Obama said in a statement.

Like the continuing efforts at overhauling health care, the changes to the federal government's higher education policies would have a serious impact on the bottom line for private-sector players currently serving the market place.

The House vote was 253-to-171, largely along party lines.

Under the legislation, all lenders would be cut out of the market for originating loans. There would still be a role for private banks and lenders to bid for a limited number of contracts to service the loans after they are made by the government.

The Federal Family Education Loan Program, wherein the government guarantees loans made by private lenders, remains the single largest source of college loans. Lenders made related loans for students at 4,465 schools for the 2008-09 academic years. Loan volume totalled $74 billion, up 13% from $65.3 billion a year earlier.

For companies like SLM Corp. (SLM), better known as Sallie Mae, the proposed changes are already having an impact. This week, Fitch Ratings downgraded Sallie Mae to BBB+ status, and called its outlook negative.

Sallie Mae's shares closed down 2.71% at $8.99.

"Today the House made a clear choice to stop funneling vital taxpayer dollars through board rooms and start sending them directly to dorm rooms," said Rep. George Miller, D-Calif., the chairman of the House Education and Labor Committee.

The Obama administration would use anticipated savings from the measure to increase grants for low-income students, boost funding for minority student groups, provide money for school construction, with a small portion left over to pay down the deficit.

The non-partisan Congressional Budget Office said that ending fees paid to private lenders would save the taxpayer $87 billion over the next decade.

An alternative proposal floated by a group of lenders including Sallie Mae would realize the same level of savings, the CBO said.

In the Senate, staff on the Health Education Labor and Pensions Committee are drafting legislation similar to the House version, according to a Senate Democratic aide.

The Senate bill also would end private-lender origination of loans, the aide said, leaving the federal government as the sole provider of college loans.

Martha Holler, a spokeswoman for Sallie Mae, said the Senate has the opportunity to pass legislation that realizes significant savings "without sacrificing choice and competition for students."