By Karoun Demirjian

In the coming weeks, the Senate will consider overhauling the way student loans are handled in the United States.

The House has already passed legislation that would put the federal government directly in charge of making loans.

Previously, some government loans were handled through private lenders, an approach that is slightly more expensive.

The proposal would use the savings in part for other education programs.

Here's the rundown.

STUDENT AID AND FINANCIAL RESPONSIBILITY ACT

The SAFRA bill is an attempt to convert all student lending involving private lenders into direct government loans, and spend the savings — about $87 billion — on Pell grants, early childhood education, community colleges, and deficit reduction.

HISTORY:

The Federal Family Education Loan (FFEL) Program, established under the Higher Education Act of 1965 , is one of two federally-backed loan programs to help students pay for college.

Under the program, private lenders give out Stafford and PLUS loans, with subsidies and loan guarantees from the government.  The federal government also sponsors a Direct Loan program, set up during the Clinton administration, which makes those same loans to students without the participation of an intermediary bank.

About seventy-five percent of schools use the private lender as opposed to the direct government loan option. But the Obama administration has been pushing to cut out the middleman, and convert the whole system to direct loans — leaving a role for banks as servicers of loans only.

It's not the first time there's been a call for more direct lending.

But last year's recession played a pivotal role in pushing this initiative forward.  As lending markets froze up in 2008, the government intervened with the "Ensuring Continued Access to Student Loans Act" (ECASLA) — a government promise, effectively, to buy loans off of lenders after four months in order to keep capital flowing through the system.

It worked. But it also meant the government would not only be guaranteeing the loans against default, but also putting up the money that — leading many Democrats to wonder along with Obama why they were trying to keep the system afloat.

Lawmakers wrangled for weeks of hearings over the proper form for an overhaul, also considering an alternative proposal from lending giant Sallie Mae, to effectively continue the ECASLA practice. Most
Republicans backed that option, in the name of competition and protecting the student lending industry from a full government takeover, and preserving jobs during an unemployment crisis. The industry is expected to shed 35,000 to 50,000 jobs as a result of the changeover, if the bill passes.

But Democratic leaders eventually went with the Obama administration's proposal as the basis for their bill.

With the legislation through the House, all eyes are now on the Senate, where lawmakers are expected to write their own, very similar, bill.

KEY SUPPORTERS:

President Barack Obama

House Speaker Nancy Pelosi (D-Calif.)

Rep. George Miller (D-Calif.)

Rep. Ruben Hinojosa (D-Texas)

Rep. Tom Petri (R-Wisc.)

Sen. Tom Harkin (D-Iowa)

ARGUMENTS IN FAVOR:

* It's good for students.  Without subsidies, more money goes into students' pockets — about $40 billion more over ten years in Pell grants.

* It would save money.  The Congressional Budget Office estimates a total savings of $87 billion over ten years, before administrative costs, at least $10 billion of which could go into deficit reduction.

* It would help more students go to college — and experts agree raising college graduation rates is a long-term ticket out of a bad economy.

KEY OPPONENTS:

Rep. John Kline (R-Minn)

Rep. Virginia Foxx (R-N.C.)

Sen. Mike Enzi (R-Wyo.)

Sen. Lamar Alexander (R-Tenn.)

Student lending industry

ARGUMENTS AGAINST:

* Reducing competition diminishes quality. The government shouldn't be allowed to run the competition out on its ear; and if it does, the students get a lower-quality product.

* Jobs.  Cutting out the middleman might be all well and good as a slogan, but there are over 35,000 jobs that are all but guaranteed gone if it happens.

* It would take too much effort, money, and time for the over 4,000 universities used to the existing FFEL system to make a total changeover, and that could yield problems.

KEY VOTES:

The House voted 253-171 on Sept. 17 to pass the bill.