The US House of Representatives passed a bill Thursday that would dramatically overhaul parts of the country’s financial aid system.

The Student Aid and Fiscal Responsibility Act, which passed by a vote of 253-171, would increase Pell Grants, expand the Federal Perkins Loan Program, simplify the Free Application for Federal Student Aid and transition federal loans to a direct loan program.

Secretary of Education Arne Duncan said the bill would give a huge boost to the country’s higher education program at very little cost.

“[This bill] would mean dramatic increases to help millions more students fulfill that dream of going to college without asking for one dollar from taxpayers,” Duncan said on a conference call. “It is the right thing financially, economically and educationally.”

Taxpayers would save as a result of the switch to direct lending, said Rep. George Miller (D-Calif.), the chairman of the Committee on Education and Labor and the lead sponsor of the bill. Miller said taking student loans out of the hands of private lenders would save taxpayers $87 billion over 10 years.

“This legislation is transformative for students and taxpayers,” Miller said on the call.

Currently, federal student loans are given through private banks and lenders at subsidized rates as part of the Federal Family Education Loan program. The Student Aid and Fiscal Responsibility Act would eliminate the FFEL program in favor of direct lending from the government as early as fall 2010.

“The [FFEL] program is on life support,” Miller said.

Opponents of the bill said although FFEL has been subject to the ups and downs of the economy, there is no reason to believe it cannot continue to function. Some also argued the cost difference would not be as large as the bill’s proponents are saying.

“If they take this over and swallow the whole public sector into the public option, [it] will have basically the same costs,” said Rep. Mark Souder (R-Ind.) before the House Thursday. “Only when you compare cost to cost, the government can’t deliver at the same price as the private sector. It never has, it never will in any category in the history of the United States.”

Opponents also questioned the viability of transitioning all of the country’s colleges and universities to the direct lender program.

Duncan, however, said about 800 universities have already made the switch from FFEL to a direct lender program, and the transition has not been a difficult one.

“There is nothing inherent in the program that suggests that it will not run smoothly,” Duncan said.

The Senate has not yet passed a bill, but Miller said he anticipates the bill will reach the president before the Senate’s winter recess.