WASHINGTON -- The Senate voted Friday to increase college financial aid by cutting roughly $20 billion in government subsidies to banks and giving it to students.
The bill would boost the maximum Pell grant, which goes to the poorest college students, from $4,310 to $5,400 by 2012.
The vote was 79-12.
The House is expected to vote on the bill later Friday and the president is expected to sign the legislation soon.
The bill would cut interest rates on federally backed student loans to poor and middle-class students from 6.8 percent to 3.4 percent over the next four years.
House Democrats pushed for the politically popular interest-rate cut. Such a provision had not been included in an earlier Senate-passed version of the bill but was added to the final version by congressional negotiators.
Democratic lawmakers say the roughly $20 billion in cuts are aimed at excessive government subsidies to the banks that give student loans. The subsidies were established to ensure that banks enter and stay in the college loan business.
Banking industry officials have objected to the cuts and have said they could adversely affect services that banks provide to borrowers.
Nearly all of the cuts would go toward making college cheaper, but $750 million would be spent on federal budget deficit reduction. The legislation is part of a must-pass bill needed to meet spending targets in the federal budget.
The bill also sets up a loan-forgiveness program for college graduates who work for 10 years in public service professions, such teaching or nursing.
It also would cap annual payments for students at a percentage of their income, which lawmakers say would prevent people from having to pay back more than they can afford.