Included in the landmark health care reform legislation, which passed through Congress Thursday, were sweeping reforms on how college students can take out loans to finance their education.

Thursday’s 56-to-43 vote in the Senate and 220-to-207 vote in the House of Representatives clear the way not only for a massive restructuring of how Americans will pay for their health care, but also a radical reshaping of financial aid and educational lending, as private banks will no longer issue student loans through the Federal Family Education Loan Program (FFELP). Instead, all federal student loans will be issued through the government-run Direct Loan Program, with no subsidies going to banks and lending agencies.

The legislation’s aim is to streamline how student loans are issued, as well as reduce the interest rates on student loans to 7.9 percent through the direct loan program, as opposed to the 8.5 percent under FFELP. Further, the lending reform will increase the amount students can get through Pell Grants and lower the threshold of eligibility for such grants, meaning students with higher family incomes will be able to receive more financial aid from the government. The non-partisan Congressional Budget Office believes the legislation will create $61 billion in savings over the next decade through cutting the subsidies to banks. Those savings will be used to expand the Pell Grant program by $36 billion, send $2.55 billion to historically black and other minority colleges and give $2 billion to community colleges and career training programs for various initiatives. The legislation will expand income-based repayment options for student loan borrowers by $1.5 billion, raise College Access Challenge Grants by $750 million and send $50 million to colleges to help them adjust to the direct loan program. It will also lower the window for student debt forgiveness from 25 years to 20 years.

Across the country, students’ rights groups were ecstatic about the new legislation, while organizations involved in issuing student loans were less glowing in their assessment of the bill.

“It’s a really big help to students,” said Pedro De La Torre, senior advocacy associate at the Washington, D.C.-based progressive group, Campus Progress. “I think the most important thing it’s going to do is it’s going to prevent Pell Grants from getting cut,” he continued, “The [Obama] administration said that if it didn’t pass this, it could be forced to cut Pell Grants, it could be forced to cut half a million students altogether and cut the grants up to 60 percent for everyone else, so the fact that we can make up that shortfall and also increase the grant and do it all by cutting wasteful subsidies to student loan companies, it’s a really big victory for students and young people.”

Although Congress initially passed the health care reform bill last Monday, Republicans’ objections to several provisions of the legislation forced Congress to take a second vote with several amended clauses Thursday evening.

Rep. George Miller (D-CA), chairman of the House Education and Labor Committee and the House co-author of health insurance and student loan reforms, issued a statement to media outlets Thursday, praising the Senate for passing the reforms.

“Today, the Senate listened to the American people by voting to improve our historic health reform law and stop sending wasteful subsidies to big banks, instead of students,” he said. “These reforms will also end a sweetheart deal that banks have enjoyed for decades, at the expense of our students and families. These savings will be used to help students and families pay for college and reduce our deficit. With one move, we will make college dramatically more affordable, prepare students for good jobs, help keep jobs in America and reduce the deficit.”

The United States Student Association (USSA) met the bill’s passage with excitement and commended Congress for passing the reconciliation provisions.

“Today will go down in history as the day when the federal government chose to invest in college students over bank profits,” said USSA President Gregory Cendana in a Thursday release.

Locally, Student Government Association chair of the State and Federal Organizing Committee Melissa Urban said the SGA lobbied hard in support of the bill.

“We’ve been working on advocacy for student loan reform,” she said. “We’ve been having call-in days and we’ve also been collecting little pieces of paper in the form of bricks with information on how much debt students had at UMass,” she said. “We’ve been advocating for it because of what it would do for student loans and for student debt,” continued Urban.

College financing expert and director of FastWeb and MK Consulting Mark Kantrowitz said that while the bill is “a step in the right direction,” it certainly could have been more progressive.

“The savings will be used for debt reduction; about 20 billion will be used to reduce the federal budget deficit, and a lot of the remainder is used to plug a funding shortfall in the Pell Grant program. That benefits students because if it weren’t for that, it would be cut. It also provides some increases in the Pell Grant over the next 10 years but it’s pretty anemic, it’s not that much. The main benefit to going to the direct loan program is that it has a lower interest … and approval rates are higher in the direct loan program,” said Kantrowitz. “The legislation also includes President Obama’s proposal to improve the income-based repayment plan, which is a safety net for borrowers who are experiencing financial difficulty. President Obama’s proposal is to cut monthly payments by one third and to accelerate the forgiveness program,” he said.

Kantrowitz cautioned that while the bill will help students in the future, no one currently enrolled in America’s higher education system will see these benefits.

“The effective date is July 1, 2014, so someone who’s in school now will not see any of those benefits. The legislation’s better than nothing, but it could have been a lot better,” he said. “The members of Congress were constrained by the need to use budget reconciliation to pass it.”

Kantrowitz said current private lenders still operating under FFELP will be seriously hurt by the bill.

“The lenders that currently make student loans are no longer going to be making loans; the only loans that will remain out of that will be private alternative loans that don’t have anything to do with the federal government.”

Although the legislation provides a grim prognosis for current private lenders, Jessica Hipp, communications manager for the non-profit student loan group Massachusetts Educational Financing Authority (MEFA), said her organization has already shifted from FFELP to direct loan, and that her organization no longer originates federal loans. Instead, it gives supplemental loans to families who need additional funds, meaning MEFA will not be adversely affected.

“In Massachusetts, MEFA for example, we haven’t originated any federal loan for a few years,” she said. “We supplement the federal programs with fixed interest loans, parents and students are co-signers. Anyone who’s a resident of Massachusetts can borrow a MEFA loan. We would always encourage them to get the Federal Stafford loan because it’s such a low interest rate,” she continued.

Conwey Casillas, a spokesman for Sallie Mae, the nation’s largest provider of student loans, said the bill will force his company to cut thousands of jobs and will not help shore the budget deficit.

“The student loan provisions buried in the health care legislation intentionally eliminate valuable student services and private sector jobs at a time when our country can least afford to lose them,” he said. “We are profoundly disappointed that thousands of student loan experts that help students daily will soon lose their jobs.”

Casillas said Sallie Mae will be forced to cut its work force by 2,500 and that, contrary to some reports, the lender has not opposed student aid reform.

“Since day one, Sallie Mae has supported reform ending lender subsidies and reinvesting savings in other education priorities,” he said. “We and about three dozen other entities have advocated for enhancements to the President’s proposal that would allow for competition and choice in loan origination, continuation of valuable default prevention and financial literacy services and protection of jobs.”

Industry group America’s Student Loan Providers (ASLP), a Washington lobbying group representing numerous banks which issue FFELP student loans, was equally stark in its pronouncement of the reform. The group contends that “by leveraging private financial markets and competing for the right to lend to students, ASLP members offer low-cost loans and superior levels of service to millions of students, and most of the postsecondary institutions that participate in FFELP.”

ASLP also claims the savings generated by ending subsidies should not go to shoring the budget deficit or to health care.

“Nine billion dollars in student loan savings will be diverted to pay for health care reform,” the group held in a March 18 release. “This is entirely unnecessary – there’s nothing in the reconciliation instructions that requires such a draconian cut in student aid, whatever the cause. It is a cynical pretext to pass a politically unpopular proposal that will eliminate thousands of jobs and services to millions of students and families.”

Sam Butterfield can be reached at [email protected].