One of President Obama’s signature initiatives is education reform and an important cornerstone of this plan is revamping the student loan business by removing financial ‘middlemen’ from the process. If the president’s plan goes forward, all federally-funded college loans would go directly from the lender to students, eliminating the service of financial institutions that have reaped huge profits in servicing these loans.

Sallie Mae, a publicly traded company and the reigning giant in the student loan arena, is leading the charge to defuse the Obama plan. Last year Sallie Mae originated $22 billion in student loans and this behemoth is not about to give up this business easily. The company has doubled their lobbying budget to $8 million and is making a full-court press on lawmakers on Capital Hill, and other financial industry players are following suit.

Secretary of Education, Arne Duncan, is not surprised. “We anticipated this. They’ve had a sweet deal. They’ve had this phenomenal deal that taxpayers have subsidized, and that’s a hard thing to give up.”

According to an analysis by the Congressional Budget Office, about $80 billion would be saved by eliminating private-industry middlemen. The Obama administration advocates taking these savings and using them to expand Pell Grants, enhance tuition tax credits and to institute a loan-forgiveness program for graduates who opt for careers in public service.

George Miller (D-Ca), chair of the House Committee on Education and Labor is a leader is calling for reform in the college loan arena. “If people want to lose $80 billion on the taxpayer’s dime for the very narrow interests of Sallie Mae, I guess they can decide that, but it makes no economic sense to me,” he said. “They had a great ride for years.”

However, critics of the plan have launched a vigorous counter attack. Sallie Mae lobbyists are zeroing on fiscally conservative lawmakers, as well as those from states like New York, Florida, Illinois, Pennsylvania and Nebraska where financial institutions provide a significant number of jobs. Their message is clear: passing the administration’s education reform package could put thousands of people out of work. Currently, student loan lenders employ approximately 35,000 people around the country. Estimates of projected job’s lost if financial institutions are dialed out of the mix differ.

In addition, detractors of the administration’s plan raise the concern that the ‘one size fits all’ loan program will eliminate competition and students will not receive the kind of counseling currently available. In an effort to insure their position in college lending, lenders are offering an alternative proposal, which they say would generate significant federal savings — $67 billion in the next decade, according to the Congressional Budget Office.

The recent special election in Massachusetts ended the Democrat’s filibuster-proof majority in the Senate. Some observers predict this will give the lending industry an opening to block the administration’s proposed reform. However, in his State of the Union address last week President Obama pushed back against the lending industry, stating, “To make college more affordable, this bill will finally end the unwarranted taxpayer subsidies that go to banks for student loans.”

“In the United States of America,” Mr. Obama said, “no one should go broke because they chose to go to college.”

Stay tuned.