The bill also provides students who enter certain public sector jobs the opportunity to have their debts erased under the plan, the total cost of which would be offset by slashing government subsidies to lenders. The program will have particular impact in California, which has more recipients of low-income student grants than any other state. The bill's increases to those Pell Grants are expected to benefit about 5.5 million needy students nationwide. Democrats describe the legislation as the largest college aid package since the 1944 GI Bill and a real benefit to families at a time of skyrocketing college costs. On the other hand lenders for student loans warn that the bill would drive smaller financiers out of business, leaving students with fewer and less attractive loan options. Republicans argued that it would burden taxpayers with costly new entitlement program.

Passage of the College Cost Reduction and Access Act comes at a time when college costs have soared nearly 40% in the last five years. It also coincides with increased scrutiny of the $85-billion student-loan industry, which has been shaken by recent scandals involving conflicts of interest among lenders and school officials, as well as kickback schemes. On Friday, one of the bill's sponsors, Rep. George Miller (D-Martinez), described the bill's passage as a victory for middle-class families. "This bill takes extraordinary steps to bring urgently needed financial relief to students and families who are working very hard to pay for college," he said.

The bill would halve interest rates for students starting July 1, from a current 6.8% to 3.4% phased in over four years. Those rates would reverse an increase enacted by the previous Republican-led Congress to fund tax cuts. The lower rates would expire after five years unless Congress renewed them. At the beginning of the 2008-09 academic year, the bill would begin increasing the maximum Pell Grant from $4,310 to $5,400 by 2012. In the 2005-06 school year, 584,580 California students received those grants. Students with direct loans from the government would receive debt forgiveness after 10 years of working in certain public sectors, including emergency first-responders, nurses, firefighters, prosecutors, early-childhood educators and librarians. That provision would take effect July 1. Undergraduates who committed to teaching in high-need public schools would receive upfront tuition assistance of $4,000 a year, up to $16,000, starting from the 2008-09 academic year.