There was a major legislative accomplishment in Washington last week, and it’s getting less attention than it deserves because it isn’t national health care reform. Last week, we made it less expensive for working families to send their kids to college.  By cutting out the middleman from the student lending system, we were able to increase funding for Pell Grants and make it easier for college graduates to repay their loans.  And, not only are these measures fully paid for, they’ll also reduce the deficit.

Under the out-dated Federal Family Education Loan Program (FFEL), the federal government paid banks enormous subsidies to entice them to lend to students.  Then on top of that, the government guaranteed the loans so there was virtually no risk for the banks.  Just taxpayer-subsidized profits.

This was not a private enterprise program, as the banks would like you to believe. It was corporate welfare masquerading as private enterprise.

The good news is that there’s a better way to run the government loan program than keeping banks on the dole.  It’s called Direct Lending, and it slashes $61 billion in costs by cutting out the middleman and lending to students directly.

This idea is hardly new.  In the early 1990s, Sen. Dave Durenberger (R-Minn.) joined with Sen. Paul Simon (D-Ill) in a bipartisan effort to end the wasteful practices of the bank lending program.  They were able to give colleges the option of switching to Direct Lending, but the bank lobbyists thwarted their efforts to eliminate the bank subsidy program altogether.

Today, I’m proud to be continuing Senator Durenberger’s fight to eliminate wasteful bank subsidies.  I’m also proud that the University of Minnesota is leading the way.

The U of M was one of the first universities in the nation to switch to Direct Lending.  I recently met with students and administrators at several U of M campuses, and they told me that the Direct Lending program is working well.  Not only does it provide students with the same benefits as the bank subsidy program at a lower cost, but it also reduces the administrative headache of financial aid officers by decreasing the number of entities they have to deal with.

To be blunt, our choice here was simple: We could continue to waste billions of dollars to line the pockets of the banks, or we could use that money to help low-income and middle class kids go to college. I’m proud to say we choose to do the latter.

Most of the money from switching to Direct Lending will be used to strengthen Pell Grants.  Pell Grants give over 8 million low-income and middle-class students the opportunity to realize the dream of attaining a college education.

Pell Grants hold a special place in my heart because of the opportunity they gave my wife Franni and her family.  When Franni was 17 months old, her father died in a car accident, leaving Franni’s mom widowed at age 29 with five kids.   My brother-in-law Neil went into the Coast Guard, where he became an electrical engineer.  But all four girls went to college, and they were able to do it on a combination of scholarships and Pell Grants.

Unfortunately, since then, the purchasing power of the Pell Grant has declined dramatically.  Thirty years ago, the maximum Pell Grant covered 77 percent of the cost of attending the average four-year public college.  These days, it only covers 35 percent.

And this economy has made a bad situation worse.  Many of the students and families I’ve met in Minnesota are struggling with high tuition and a tough economy.  The average Minnesota student graduates from college with over $25,000 in debt.  Job losses and cut backs have left many middle class families barely hanging on.  That means that more students who depend on Pell Grants have to spend more hours at work and away from their studies to help pay for their education.

It would have been shortsighted to continue with the failed bank subsidy system, since we know that within a decade, 75% of all new jobs will require a college education.  A national switch to Direct Lending was simply the right thing to do for our students, for our families, and for our economy.