Sept. 12 (Bloomberg) -- A proposal backed by Sallie Mae to let private lenders continue selling federal student loans may save $13 billion less than President Barack Obama’s plan to cut them out of the market, the Congressional Budget Office said.

The nonpartisan budget office provided its analysis yesterday in a letter to Representative George Miller, a California Democrat who heads the House Education and Labor Committee. The House plans to vote next week on Obama’s proposal, which would save the government $80 billion over 10 years, according to the budget office.

The alternative offered by the lenders led by Sallie Mae would save about $67 billion during that period, the budget office said. It would also incur about $4 billion more than Obama’s plan in costs not directly related “to the proposed shift away” from federally guaranteed loans.

Obama’s proposal, incorporated in legislation sponsored by Miller, would end the 43-year-old Federal Family Education Loan Program that subsidizes and guarantees loans made by private lenders. All government-backed lending would be provided through a separate program, created in 1993, that lets the Education Department make loans directly to students.

The private companies would compete for loan-servicing tasks such as processing payments and collecting on defaults. Some of the resulting savings would be directed into Pell Grants to help low-income families afford college.

‘Superior Plan’

The budget office’s estimate “shows that the Obama administration’s student-loan proposal is the superior plan for saving taxpayers dollars and providing the greatest benefits for our nation’s students and families,” Rachel Racusen, a spokeswoman for Miller’s committee, said yesterday in an e- mailed statement. The lender-backed alternative “sneakily short- changes students and taxpayers to line the pockets of banks,” she said.

SLM Corp., the company known as Sallie Mae, Nelnet Inc. and Citigroup Inc.’s Student Loan Corp. were among 30 organizations that sent lawmakers the alternative proposal in July. The group’s plan would let private lenders continue to market federal student loans, which they would then sell to the government.

Sallie Mae spokeswoman Martha Holler said the full analysis in the CBO report “confirms that mandatory savings of $87 billion are achievable” under both Obama’s plan and the lender- backed proposal.

‘Historic Savings’

The alternative proposal “produces historic taxpayer savings, preserves choice and competition for students and schools and protects valuable jobs relied on by thousands of families and communities across the country,” Holler said in an e-mailed statement.

The lenders say their plan would save more than 35,000 industry jobs and ensure uninterrupted access to financing by letting more than 4,500 schools continue using their existing loan systems, instead of switching to the government’s. Other members of the coalition include state agencies, financial institutions such as SunTrust Banks Inc., and nonprofit groups such as Knoxville, Tennessee-based Edsouth.

Reston, Virginia-based Sallie Mae is the biggest U.S. provider of student loans, followed by Student Loan Corp. and Lincoln, Nebraska-based Nelnet. Sallie Mae made $24.2 billion in student loans last year, 74 percent of them federally guaranteed.

To contact the reporter on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net.

Last Updated: September 12, 2009 00:00 EDT