WASHINGTON — A group of firms led by SLM Corp. and a subsidiary of Citigroup Inc. released a plan Tuesday that seeks to retain a significant role for private lenders in the student loan market.

The backers of the plan hope to convince lawmakers to take up their proposal rather than a plan put forward by the Obama administration that would end all private origination of student loans and use only a small panel of financial firms to service all student loans in the future.

Administration officials have argued the Obama proposal would provide certainty that funding will be available to students and save nearly $90 billion over the next decade by ending unnecessary public subsidies paid to banks. It would use the freed up money to partially cover the cost of a permanent increase in grants for students from lower-income families.

Critics have questioned the amount of savings it would generate and said it would needlessly end an income stream for banks at a time when they are suffering through a severe economic downturn.

The alternative plan released Tuesday is supported by student lending giants SLM Corp., better known as Sallie Mae, Citigroup subsidiary Student Loan Corp., PNC Financial Corp. and SunTrust Banks Inc. It also has the support of a large group of not-for-profit lenders, regional banks and guaranty agencies.

The groups hope to be able to convince House Education Committee Chairman George Miller, D-Calif., of the merits of their alternative. Miller, who is seen as the point man on any reforms of the student lending market, has held hearings on the issue but has yet to introduce any legislation outlining reforms.

There has been speculation he may do so in the coming weeks.

The coalition of around 30 lenders, servicers and guaranty agencies sent a letter Tuesday to all 535 members of Congress outlining their plan.

"We...acknowledge that the time has come for a significant change in the way student loans are financed," the letter said. "We want to bring our expertise to the table and work constructively with you on this crucial policy discussion, and we believe this proposal is a positive step forward."

It would continue Treasury funding of all student loans as envisaged by the Obama proposal.

The crucial difference would be that it would allow individual colleges to maintain panels of private sector and not-for-profit lenders that would originate and service loans.

Firms would be paid an annual fee by the Treasury for servicing the loans. The public funds to pay the fees would be considered discretionary federal spending, meaning Congress would have to set its level each year.

An existing default fee of 3% that servicing firms must pay to the federal government in the event of a student defaulting on a loan would continue, which the backers of the alternative plan said would raise revenue for the Treasury.

Lenders active in student lending say they don't make significant earnings off the loans themselves, but they present the opportunity to strike up relationships with students to whom they can then cross-sell other financial products.

They have argued against the Obama plan as it would end their role in loan origination.

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