A landmark day for ... education finance reform?

The big story today is, of course, the historic health care reform that passed late last night.  That said, a major but little reported aspect of the reconciliation legislation just passed by the House is not about health care at all, but about education in the form of SAFRA, the Student Aid and Fiscal Responsibility Act.

The CBO reports:

On the education side, the reconciliation proposal would amend the Higher Education Act of 1965, which authorizes most federal postsecondary education programs. In particular, the proposal would eliminate the federal program that provides guarantees for student loans and replace those loans with direct loans made by the Department of Education. It would also increase direct spending for the Pell Grant program and other education grant programs. 

So what does it all mean?

Stafford Loans are going away; those loans will now become Direct Loans administered by the Federal government, not private lenders. Currently, all of these Stafford Loans are guaranteed by the government and many of them are subsidized, all but ensuring the private lenders a profit on the loans. The switch to Direct Loans should theoretically eliminate the overhead associated with guaranteeing these loans or subsidizing their interest rates.

The projected savings will go towards increasing Pell Grants, investing in HBCUs and other minority serving institutions, and funding College Access Challenge Grants.