House leaders have agreed to insert the proposal into a budget package that also will include the president’s health care reform bill. The maneuver will jump-start the student loan proposal and almost certainly assure its passage because it will no longer need 60 votes to clear the Senate.

The decision is a serious setback for private lenders, who have been working to block the proposal and have been pushing an alternative that they argue will save money over the long run.

“It’s a shame they are trying to push it through without having any serious look at it, without having a look at the alternative proposal,” said Elena Lubimtsev, senior vice president of Edamerica, a national private lending company based in Knoxville.

“They are not listening to schools,” Lubimtsev said. “Their voices are kind of being drowned out in all of the health care debate.”

The White House proposal calls for the elimination of a popular student loan program – the Federal Family Education Loan Program.. The change would enable the federal government to lend money directly to students.

The U.S. House passed the proposal in September, but it stalled in the Senate amid concerns that it would limit students’ financial options and could result in the loss of thousands of jobs across the country.

The Obama administration had argued the switch would save more than $87 billion over 10 years and that the savings could be used to provide more loans to low-income students.

But a recent analysis by the nonpartisan Congressional Budget Office concluded that the proposal would save about $20 billion less than projected, primarily because a number of colleges already have joined the government’s direct lending program.

Some 2,300 colleges already have switched to direct student lending in anticipation of the Obama proposal becoming law, said Kevin Bruns, executive director of America’s Student Loan Providers, which represents lenders.

Another 2,700 would have to make the change by July 1 if the proposal becomes law. But colleges and universities are getting ready to process their financial aid for the upcoming academic year, and there is not enough time for all of them to switch systems beforehand, Bruns said.

The money saved under direct student lending is supposed to be used to expand Pell grants for students and pay for other education programs. But the weak economy has caused more college students to seek Pell grants, causing the cost of the grants to jump from $40 billion to $54 billion.

Earlier this month, Tennessee’s congressional delegation sent a letter to Education Secretary Arne Duncan, House Speaker Nancy Pelosi and others warning that the immediate elimination of FFELP could jeopardize financial aid for millions of college students.

The lawmakers called for Congress to extend a temporary measure that provided government financing to private lenders to originate federal student loans. The letter was signed by all of the Tennessee delegation’s members, except for U.S. Reps. Jim Cooper, D-Nashville, and Steve Cohen, D-Memphis.

Bruns called the decision to include the student loan proposal in the budget package with the president’s health care bill “a strange turn of events.”

“In the end,” he said, “student loan borrowers are being used to pay for health care.”

Lubimtsev said private lenders are continuing to talk to lawmakers in hope of convincing them that any major changes to the student loan program should be considered on their own and not as part of the health care package. Lawmakers have held 58 hearings on health care reform, she said, but only one on the student loan proposal.

“Students deserve a little better than that,” Lubimtsev said.

Edamerica has about two dozen marketing representatives around the country, plus managers and support staff who work in Knoxville. An affiliated company, Edfinancial Services has more than 400 people who work in Knoxville processing student loans.