A bill set to go before the U.S. Senate this fall would be the largest policy overhaul in financial aid history and would be financed by eliminating the government program that pays interest on a students’ loans while they are still in school.

Under the bill, all future government loans would be offered to students through the Federal Direct Loan program, which has been in place at the University for 14 years. These loans would be similar in terms to current government loans, but would begin to accrue interest the moment they are issued. Officials hope to begin offering loans under the new system by July of next year if the Senate approves the bill, but loans already taken out would be unaffected.

“This bill will end the billions upon billions of dollars in unwarranted subsidies that we hand out to banks and financial institutions,” President Barack Obama said in a statement on the bill.

The bill, called the Student Aid and Fiscal Responsibility Act, would end the government’s subsidized Stafford loan program. Subsidized loans have differed payment plans and are offered through private lenders, with the government guaranteeing these loans and paying the interest until the student graduates. Unsubsidized loans carry similar terms, but with interest accruing the minute they are taken out.

Speaker of the House Nancy Pelosi said in a conference call that the bill would save money for both taxpayers and students because the Direct Loan program was more efficient than the current system of subsidized loans. According to a report by the Congressional Budget Office, the bill could save taxpayers about $80 billion over the next decade.

“Today we made the single largest investment in making college more affordable in the history of our nation, and it’s the best investment we can make,” Pelosi said.

Brenda Maigaard, director of the University’s Office of Student Financial Aid, said students would not notice much of a difference in the process of applying for and accepting loans under the system proposed in the bill.

“The Federal Direct Loans process is seamless for both students and parents,” Maigaard said. “Once the student accepts the loan and completes the required Master Promissory Note and Loan Counseling for first-time borrowers, the funds are available within just a few days.”

About half of the savings under the bill, or $40 billion, would go towards strengthening the government’s Pell Grant program. Pell Grants are government-funded grants for students who demonstrate financial need on the Free Application for Federal Student Aid, or FAFSA. The bill would also designate about $30 billion in savings to fund other education projects and $10 billion to go towards reducing the government’s general budget deficit.

“It has been a very good day for students and families who are trying to figure out how to pay for college,” said George Miller, chairman of the House Committee on Education and Labor, in a conference call.

Anthony Whaley, Lawrence senior, said that during his time at the University he has received both Pell Grants and government loans.

Whaley said he was glad the bill included increased funding to Pell Grants, which have helped him cover most of his educational expenses for the current year. But, he said he was unsure how the bill would directly benefit students who were dependent on loans and ineligible for Pell Grants.

“The larger grant amounts would help a select group of people more, but the loans would help a larger group of people a little less,” Whaley said. “That’s just the trade off that you have to make, and I’m personally for helping more people a little less.”

According to the University OSFA’s most recent annual report, more than 8,500 students received subsidized student loans during the 2007 fiscal year. The total amount of these loans was more than $38 million, making up about 40 percent of all student loan dollars. During this same period, only about 3,000 students received Pell Grants, totaling about $8 million.

Whaley said he had accumulated about $200 in interest on a $1,000 unsubsidized loan he took out in 2005. Although the terms for the unsubsidized loans under the new system would be different than his loan from four years ago, the interest rates are similar and may give students a good idea about what to expect from these unsubsidized loans when they graduate.

The bill was approved by the House on Sept. 17 with a vote of 263-171 and is expected to go before the Senate later this fall. However, there have been concerns from some politicians regarding the increased role of government in the new student-lending policy. Under the bill, private loan companies would still provide funds for student loans, but only after a competitive bidding process.

On the Web site of the House Committee on Education and Labor , director of Research and Outreach Betsy Kittredge said the bill would create a more efficient type of public-private partnership and would ensure that students received the cheapest loans with the best possible service.

“It’s ridiculous to argue this is a government takeover, when the federal student loan programs are already a federal program, established and subsidized by the federal government,” Kittredge said.

Kittredge said that under the current system, about 60 percent of the money for government student loans was already financed by taxpayers.

“There’s simply no reason to keep pumping taxpayer dollars into a broken system when the federal government can provide the same low-cost federal loans more reliably for students and at a lower cost for taxpayers,” Kittredge said.

— — Edited by Lauren Cunningham