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The student lending overhaul ends the current program that subsidizes banks and other financial institutions, allowing students instead to borrow directly from the federal government. The bill, which first passed the House in September, also would greatly expand the Pell grant program for low-income students. The reforms also aim to revitalize community colleges and increase support for minority-serving institutions and historically-black colleges.

“Year after year, we’ve seen billions of taxpayer dollars handed out as subsidies to the bankers and middlemen who handle federal student loans when that money should have gone to advancing the dreams of our students and working families,” Obama said. “But this time, we said, would be different. We said we’d stand up to the special interests, and stand up for the interests of students and families. That’s what happened this week. And I commend all the senators and representatives who did the right thing.”

The legislation would save an estimated $61 billion over 10 years. Universities that participate in federal lending have just a few months, until July 1, to switch their financial aid systems to the new “direct lending” program. Starting in 2014, the legislation will also cap a graduates’ annual student loan repayment at 10 percent of their income.

Republican opponents of the legislation have denounced it as yet another “government takeover,” and the banks, not surprisingly, have lobbied hard against this switch.

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