WASHINGTON - More needy college students will have access to bigger Pell Grants, and future borrowers of government loans will have an easier time repaying them under a vast overhaul of higher education aid on its way to President Obama's desk.
Under the measure, private banks would no longer get fees for acting as middlemen in federal student loans.
The government would use the savings to boost Pell Grants and make it easier for some workers to repay their student loans.
In addition, there could be lower interest rates and higher approval rates on student loans.
The legislation, an Obama domestic priority overshadowed by his health-care victory, has widespread reach. About 8.5 million students are going to college with the help of Pell Grants.
The measure was part of a package of fixes to the health-care legislation Mr. Obama signed earlier this week. The Senate approved the fixes yesterday.
Sen. Tom Harkin (D., Iowa) praised the bill as a victory for middle-class families.
"Now they'll have the assurance that their kids will be able to afford to go to college and again, when they get out, they won't be burdened with a huge debt," he said.
The changes do not go as far as President Obama and House Democrats wanted. That is because ending fees for private lenders would save less money than they anticipated, according to budget scorekeepers. The bill is now expected to save $61 billion over 10 years.
As a result, the Pell Grant increase is modest and still doesn't keep up with rising tuition costs. Advocates had sought bigger increases.
Many schools already have or already were planning to switch to the plan that takes private lenders out of the business of originating student loans. Among the roughly 5,000 colleges, universities, and trade schools that take part in the federal loan programs, 87 percent have switched to the William D. Ford Federal Direct Loan Program or are doing so, said Justin Hamilton, a spokesman for the U.S. Education Department.
Private lenders still will make student loans that are not backed by the government, and they still will have contracts to service some federal loans. But the change represents a significant loss to what has been a $70 billion business for the industry.
Key features of the measure include:
•Pell Grants would rise from $5,550 for the coming school year to $5,975 by 2017. Lawmakers had initially hoped to reach a $6,900 cap.
•More eligible students could get a full Pell Grant. Most grants go to students with family income below $20,000, but students with family income of up to $50,000 may also be eligible.
•Some college graduates will have an easier time repaying loans. The government will essentially guarantee that workers in low-paying jobs will be able to reduce their payments.
Current law caps monthly payments at 15 percent of these workers' incomes; the new law will lower the cap to 10 percent.
Savings from the measure will also go toward reducing the deficit and helping to pay for expanded health care.