This article basically states that within the federal loan program, the middle man is being eliminated,  It’ll save the government billions of dollars, but I’m not sure how efficient the program will work.  Basically all student loans will come directly from the government.

Mark Kantrowitz / Publisher of FinAid and FastWeb

September 22, 2009

The US House of Representatives passed the Student Aid and Fiscal Responsibility Act of 2009 (SAFRA) on September 17, 2009 by a party-line vote of 253 to 171.

This legislation eliminates the federally-guaranteed student loan program and replaces it with 100% direct lending from the federal government. SAFRA uses the savings to fund an increase in the Pell Grant program among other initiatives. The US Senate is expected to consider its own version of the legislation within a few weeks.

The Congressional Budget Office (CBO) estimated that ending the origination of federal education loans by banks and other financial institutions would save the federal government $87 billion over the next ten years.

The education lenders countered with their own proposal, but the CBO scored it as saving $13 billion less. The Obama administration argues that the Direct Loan program saves the government money by eliminating the middleman. However, much of the savings comes from the federal government’s lower cost of funds.