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Government-backed loans at private banks will end July 1, and schools have been given three months to move over to the new government-run program.

“By cutting out the middleman, we’ll save American taxpayers $68 billion in the coming years — $68 billion. That’s real money,” Mr. Obama said.

The government is planning to spend that money on increasing Pell Grants for low-income students and on aid to historically black colleges.

Democrats believe the changes are good politics, too. Democratic National Committee Chairman Tim Kaine joined the College Democrats of America on Tuesday afternoon for a press conference call with college reporters to trumpet the new law.

Mr. Kaine said that, combined with health care, the measures were “the culmination of a breathtaking week of campaign promises met.”

Critics, though, warned the Education Department is not ready to handle the loan program.

“Is anyone surprised to see a massive government bureaucracy having technical difficulties?” said one congressional Republican aide involved in education policy. “There’s a reason no one likes going to the DMV. Unfortunately for students, now there’s nowhere else to turn.”

The broader decision to nationalize loans has also come under fire.

Sen. Lamar Alexander, Tennessee Republican and a former education secretary, said the government could lend the money at a lower rate and save students money, but instead the government will keep the interest rate at 6.8 percent.

He also said borrowers should be frightened by having to deal with government bureaucrats at federal call centers, rather than with loan specialists at banks.