WASHINGTON, July 11 — The House on Wednesday approved far-reaching changes in student aid programs, voting to cut $19 billion in federal subsidies to student lenders over five years, while increasing grants for needy students and halving interest rates on federally backed loans with the savings...

As well as cutting lender subsidies, the bill reduces the share the government would guarantee in the event of student default. It halves the interest rate on federally backed loans gradually over the next five years, to 3.4 percent from 6.8 percent, and would limit monthly payments to 15 percent of the borrower’s discretionary income.

The bill raises the maximum Pell grants by $500 over the next four years, to a total of $5,200 by 2011. It also grants $5,000 in loan forgiveness for police, firefighters, prosecutors and other public servants, and a complete release from student loans for public servants after 10 years. It would also provide for complete forgiveness of federal student loans after 20 years for economic hardship...

[The House and Senate] measures also require the federal Education Department to set up a pilot program to auction off the right to make student loans, giving the business to the lender that would charge the least.

Advocacy groups for student borrowers praised the legislation. Michael Dannenberg, director of the New America Foundation’s education policy program, called Wednesday’s bill “an important first step toward getting politicians out of the business of writing subsidized lender profit rates into law.” The group was the first to pitch auctions as a way to set lender subsidy rates.

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