collision course over federal subsidies for student loans.

The latest conflict concerns an industry-backed effort to change the way government subsidies for banks are calculated. Led by Sallie Mae, the industry successfully lobbied lawmakers last week to insert a provision in an unrelated House bill that would tie these federal payments to interest rates on commercial paper. Currently, interest rates on Treasury bills serve as the yardstick.

The Education and Treasury departments oppose the amendment, saying it could produce a $1.7 billion windfall for lenders and loan buyers in the form of increased government payments and lower hedging costs over roughly a decade. They calculate Sallie Mae alone could save $692 million.

Yet industry representatives cite a Congressional Budget Office study that the federal government would save as much as $20 million over five years and a separate finding by the administration's own Office of Management and Budget that the proposal would not affect the U.S. budget.

Bankers are not seeking a fast buck, industry officials argue, but advocating a formula that could actually reduce their profits to make costs more predictable.

"The T-bill is so volatile relative to other financing instruments," said Paul Carey, executive vice president of Sallie Mae, adding that they are more sensitive than commercial paper to economic shocks such as the Russian bond default last year. "We have proposed to take an expected small reduction in margin in exchange for a more consistent margin."

Congress last year cut the rates banks may charge, a move that is expected to drive lenders away. Changing the subsidy formula could retain or attract lenders. "If the rate mechanisms weren't changed, there could be lenders who pull back," said Joe Belew, president of the Consumer Bankers Association.

The provision is in a House bill to help the disabled, which passed on a 412-to-9 vote Oct. 19. Negotiators are expected to meet next week to reconcile that legislation with the Senate version, which contains nothing on student loans. Industry lobbyists are hoping bipartisan support will persuade lawmakers to preserve the provision and that the popularity of the overall bill will prevent a veto.

Industry officials say the administration is simply trying to protect the government's direct-lending program. "The numbers they are presenting are not true and absolutely misleading," Mr. Carey said. "A more stable (private lender) program is not good for the direct-loan program."

Administration officials similarly question industry motives. "People are generally saying this is one of the strongest lobbying efforts by Sallie Mae they have ever seen," said Donald M. Feuerstein, a senior adviser to the Education Department. "One would have to ask why they would be doing this if, as they say it has no impact on their profitability."

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