Despite all of the evidence to the contrary, the student loan industry has always denied that loans made through the Department of Education's Direct Loan program cost taxpayers less than subsidizing private lenders under the Federal Family Education Loan (FFEL) program. With a bill pending in Congress that would eliminate FFEL in favor of 100 percent direct lending, the loan industry is again claiming that billions of dollars in savings projected by non-partisan budget experts are a mirage.

In one recent claim, the loan industry suggests that direct loan savings, as estimated this year by the Congressional Budget Office (CBO), are a sort of stars-are-aligned anomaly arising from historically low U.S. Treasury interest rates. The interest rates are indeed a key component of program costs. Thus, the loan industry argues that under "normal" circumstances, eliminating FFEL would not generate savings -- or at least not the shocking $47 to $87 billion over 10 years (depending on the estimate) that CBO projects.

There is a simple, albeit crude, way to check the accuracy of such a claim. Every year, CBO calculates the subsidy rate (i.e. cost to the government) of the average loan made under the two programs in its 10-year baseline estimate. Under these projections direct loans have always had a lower rate than FFEL because the Education Department doesn't have to make payments or provide insurance to private lenders and guaranty agencies under the program. Thus, the subsidy rate difference is a measure of direct lending's lower cost to the government, and CBO uses that figure when calculating the savings from switching to 100 percent direct lending.

The 2009 estimate, which determines the savings under the proposal pending in Congress, shows that the gap in subsidy rates for the two programs averages 12.3 percentage points over the next 10 years. If the student loan industry's argument was correct, that would be an unusually large difference compared to estimates from earlier years. But just the opposite is true.