U. S President Barack Obama today will sign into law a new legislation relating to health care loans for students in which the government will become the primary lender taking over from the banks.

The U. S. Department of Education which already distributes about the third of these aids will now handle all of them from of them starting July 1. The new law would see the same rules for borrowers while some lenders and colleges will be affected.

The banks will be allowed to offer private, non-guaranteed college loans which are usually more expensive than the guaranteed loans. The interest rate on Plus loans is only 7.9 percent in the direct-loan program versus 8.5 percent in the bank program. The rate on Stafford loans remains the same in both the programs.

Obama has already signed a majority of health legislation which he managed to form after intense debating and political procedures. The exercise is called the largest rewrite of college assistance programs in more than forty five years.

The Federal Family Education Loan Program was created in 1965 and the Education Department started making loans only by 1994.

The assistance programme is grand as about 8.5 million students take help from Pell Grants while about 50% of undergraduate students receive federal student aid. The new legislation will do away with the banks acting as middlemen and the money saved will be used to increase Pell Grants and ease repayments of student aids for workers.

This could also increase approval rates on student loans along with lower interest rates. Obama is bringing these changes with an aim of making the college studies more affordable and the loans easily manageable for undergraduate students.

Under the plan the loan repayment would see a cap of 10 percent of a graduate's income.

The saved money will also go for needy students, community colleges and minority-serving colleges.