House Democrats plan to move forward on a bill next week that would prevent banks from making loans to college students, with the federal government assuming the role as the main provider of student loans.

Lawmakers are pursuing the sweeping reforms over the objections of the lending community, many universities and the Republican minority in Congress.

The legislation would limit private involvement in the student loan marketplace to bidding for a limited number of contracts to service loans after they are originated by the federal government.

House Education and Labor Chairman George Miller, D-Calif., has been a strong proponent of the changes, arguing they would provide certainty to families in need of loans to help afford the rising costs of college.

The Obama administration's stance is that the reforms will end needless subsidies to private lenders for a service the federal government can provide more cheaply.

The House bill has been scored at generating a savings of $87 billion over the next decade, money that would be reinvested in loans for poorer students, funding for community colleges with a small portion used to help pay down the deficit.

Opponents argue that the official savings is artificial, and that the reforms could ultimately end up costing the taxpayer money. They say that private lenders have expertise in working with students and their families, and that default rates are significantly lower when loans are made through banks rather than a government program.

In determining the cost savings of the measure, the non-partisan Congressional Budget Office didn't take into account the impact of market risk, such as future default rates or interest rate movements. Nor did it revise its cost estimate after the White House released a mid-term budget review in August.

The CBO, according to the strict budget scorekeeping rules, isn't allowed to take these factors into account, but critics say in not doing so, it is providing an incomplete or even inaccurate picture of the cost savings of the student loan reforms.

A separate reform proposal put forward by a group of lenders including SLM Corp. (SLM) - better known as Sallie Mae, a subsidiary of Citigroup Inc. (C) and SunTrust Banks Inc. (STI), would preserve a role for lenders in both originating and servicing student loans. Friday afternoon, its backers were waiting for the CBO to offer up a cost savings estimate from their plan, hoping that it would generate as much cost savings as the House Democrats' proposals. They are hoping to convince the Senate to consider their proposal rather than the House bill.

Given the Democratic majority in the House, the legislation is almost certain to be easily approved when it comes up for a vote next week. But what's less clear is how or when the Senate will act on the reforms.

Staff of Sen. Edward Kennedy, D-Mass., had been working on a Senate version of the reform plans. With his death, Sen. Tom Harkin, D-Iowa, this week assumed the role of chairman of the Senate Health Education Labor and Pensions Committee, which has jurisdiction over education policy.

It isn't clear whether Harkin's aides will pick up where the Kennedy team left off, or start over with their own plan.

Some moderate Democrats like Sens. Ben Nelson, D-Neb., and Kent Conrad, D-N.D., have had concerns about the proposal because of the dominance in their states of semi-private not-for-profit banks in the student lending industry, which could be cut out of market.

Others have had concerns over the financial sector jobs that could be lost - up to 30,000 nationally, according to some estimates.

The Senate hasn't released a version of its legislation yet, and with the current focus on health care reform it's possible it could be some time before lawmakers turn their attention to student-loan finance reforms.

Which would be fine, except the House bill requires every college in the U.S. to be prepared to move from using private lenders to the federal government by July 1, 2010.

Some large universities have complained that even if the requirement was already law, there wouldn't be sufficient time for them to switch their systems, and educate financial aide staff about the new requirements.

Robert Shireman, deputy undersecretary at the Department of Education, who is the administration's point man on the reforms, said no change is not an option, because for the last two years, with the credit markets virtually at a standstill, the Treasury stepped in to provide the funding for the majority of student loans.

Barring congressional action to extend that program for a third year, the Treasury couldn't provide similar assurances to the market for the coming year.

"Something needs to move, there is not a status quo option that works," Shireman said.

-By Corey Boles, Dow Jones Newswires; 202-862-6601; corey.boles@dowjones.com