Student loan lobbyists have been distributing a memo around Capitol Hill, with the misleading claim that if the FFEL program is eliminated in favor of direct lending, 35,000 jobs will be lost. The claim has been repeated in Time, The Hill, the National Journal and the New York Times, just to name a few.

Read the memo here.

In fact, there are only 30,000 people employed in the entire industry, which includes three different sectors:   origination, guarantee agencies and loan servicing. The number comes from a survey conducted by the National Council of Higher Education Loan Programs — an association for student loan companies.  The only sector that would be replaced entirely by direct lending is origination, the least labor-intensive of the three. According to Ben Miller at the Quick and the Ed:

Loan origination in its most basic form is the process of obtaining the money for student loans and transferring those funds to borrowers or to their institutions. This is a very inexpensive activity. According to information from the U.S. Department of Education, its complete cost of originating a Direct Loan last year was around $5.50. That figure includes around $1.50 in administrative and other expenses.

When you compare that with the $75 per loan that the student lenders are currently being paid for loan origination under ECASLA, you get an idea where the savings in SAFRA are going to come from.

Servicing jobs would actually increase, because private companies are being awarded contracts to service all of the direct loans made by the government. Nelnet (Ben Nelson’s biggest donor) saw their servicing revenues increased 13% in 2009 as a result of a contract they won to service student loans for the Department of Education, and their stock rose 6% on the news.

And most of the jobs in the guarantee agencies (roughly 4000-5000) are being saved courtesy of money stipulated in the SAFRA bill itself.

Tim Ranzetta of the independent Student Lending Analytics estimates that more realistically, “the number of U.S. based jobs related to federal student loans is likely to range from a net increase of 300 jobs to a net loss of 4,750 over the next several years.” Pedro de la Torre at the Nation puts the number “between 170 net US jobs lost under the worst interpretation, and 1,870 US jobs gained under the best.”

Whether the jobs on the origination side are even in jeopardy is open to speculation. Sallie Mae says that 2,000 of their 8,000 employees may lose their jobs, but they are also bringing 3,500 jobs back to the US in order to qualify for the servicing contract on direct loans they were recently awarded. Citibank, the second biggest student loan originator, recently reassigned 5% of its loan origination and servicing employees (43) to the company’s credit card business rather than laying them off. Citi CEO Vikram Pandit said “whether or not the government makes the loan, somebody needs to process them, and we’re doing that right now.”

None of these estimates factor in the jobs that would be saved or created by money going to state education programs with the passage of SAFRA.

Ranzetta has done a series of posts on the true jobs situation. You can read more here, here, here and here.

The bottom line: job losses in a tough economy are nothing to treat lightly, but the claims made by lobbyists don’t hold to close scrutiny, and the jobs impact must be weighed against the number of students currently enrolled in each state if money that could be going to schools is instead propping up a costly and unnecessary industry that is surviving only because of government subsidy.

Find out more about the Students, Not Banks campaign and sign the petition.