New Calculation Finds Less Savings for Government in Student-Loan Industry’s Plan

The banking industry’s bid to keep its central role in the system of federally subsidized student loans may have just gotten a little tougher.

The nonpartisan Congressional Budget Office, at the request of Democrats, made another review of the latest alternative the industry proposed to President Obama’s plan to end the bank-based loan program. And the budget office concluded the industry plan would save taxpayers about $8.5-billion less than would the Obama administration’s plan.

The budget office has estimated the president’s plan would save nearly $87-billion over 10 years by ending federal subsidies to private student-loan companies and instead supplying all student loans directly to students through the Education Department.

The loan companies, in trying to discourage Congress from taking that step, proposed various alternatives in which private lenders would play a reduced role in the federal system of loan delivery. Their main current proposal was previously estimated by the Congressional Budget Office to save taxpayers about $82.5-billion over 10 years. The loan companies have said that Congress should consider that amount of savings to be nearly comparable to the amount that would be saved by the Obama administration plan, given the industry plan’s added benefit to colleges of maintaining the loan-delivery system in a form closer to what most colleges already use.

But that $82.5-billion estimate was based on having the industry proposal in place for five years, after which the bank-based system would be phased out. The new estimate was calculated based on keeping the industry alternative in place for all 10 years. That estimate shows the industry plan would save a little more than $78-billion over 10 years.

The new estimate may have significance for some in Congress, but it probably won’t have a large effect on the debate, said Mark Kantrowitz, publisher of FinAid, a Web site that provides advice on financial aid.

“In a way, it is irrelevant whether the $87-billion or $78-billion figures have any connection to reality,” Mr. Kantrowitz said, “as these figures are the excuses needed to justify spending more money on student aid without having to raise taxes or cut other programs.”

Loan-industry representatives said Senate Democrats, by asking the budget office to assume that the industry proposal’s provisions are extended for a full 10 years, aren’t reviewing the plan as set forth by the lending community. “This is not an estimate of the community proposal,” Kevin Bruns, executive director of America’s Student Loan Providers, a coalition of loan providers, said of the new budget analysis.