No matter it’s structure, it’s a widely accepted fact at this point that there are ways to reform the federal student loan programs in order to reduce costs. At this point then, the more salient issue becomes exactly what these reforms should look like and what additional goals should be considered during these changes.

In mid-September the U.S. House of Representatives passed its version of the loan reforms, one which generally maximizes cost savings that can be redirected to students by eliminating subsidies for lenders, using U.S. Treasury funds to originate loans, and then hold a competitive bidding process to select private companies to act as servicers. The only part of the legislation where this goal takes a back-burner is a provision for nonprofit lenders and servicers, who are given guaranteed monopolies and a higher payment rate.

By contrast, the student loan community plan, a conglomerate of several separate trade group proposals, takes a different tactic, replicating what was supposed to be an emergency fix to keep the loan industry functioning, but then adding in additional carve-outs and volume guarantees in the hopes of preserving some of the jobs that may be lost through the reform process. In doing so, it sacrifices about $13 billion of the cost savings and almost all of improved policy process that also comes with the changes. (In this post I’ll discuss the jobs number. In a later entry I’ll discuss the policy efficiencies behind the two plans.)

Now, there is a larger point being made very well on other sites that the job losses issue is a side issue because the federal student loan program is not about employees but about providing access to loans for students at certain terms and conditions set by Congress. In that respect, the program’s administrators (the Department) have an obligation to taxpayers to minimize the amount of resources it consumes. That being said, it’s worth taking a closer look at some of the actual numbers to get a better sense of just what the job losses actually entail.

The student loan industry employs about 35,000 people and that’s the number used by lender-led campaigns when they talk about keeping jobs. But it’s also a red herring. No matter the reform scenario, private loan companies are still going to be handling servicing duties and will also likely continue to play a role in default prevention and collection. Those jobs may shrink somewhat due to consolidation within the industry (something already happening) but they are going to stay largely intact. At the same time, some money in the College Access and Completion Innovation Fund already goes to loan industry companies, and that amount would more than double under the House’s legislation, which will probably create or preserve more jobs.

So where will the losses come from? Tim Ranzetta at Student Lending Analytics has a definitive post on this topic, but the largest source of eliminated positions will be in loan origination.

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.

That figure, however, is well below the $75 origination fee that would be paid to lenders under the loan community proposal. But that’s because the two are not equivalent. The Department could not say if the two fees would cover comparable services, and a spokesman for Sallie Mae said the industry’s proposed fee also includes financial literacy services, an investment planner, the cost of selling the loan to the Department, and some additional services provided upfront to counsel borrowers. It also includes services that are not directly related to the individual borrower at that time, such as filling out the Free Application for Federal Student Aid (FAFSA). I have asked Sallie Mae to provide a breakdown of costs covered by that fee and if I receive it will update the post to include that information.

Loan origination would be the single biggest source of job losses for lenders.  According to the Sallie Mae spokesperson, eliminating that function would cost the company about one-third of its employees. Though the spokesperson could not speculate that ratio would be the same across the industry, if it was that would amount to about 11,550 jobs eliminated by ending this function.

So what does the cost of preserving this function work out to? According to Department figures, there were 11.3 million student loans disbursed last year. If the cost of just origination were the same for lenders and the Department, then $69.5 of the payment would be going for these other services. That works out to $785.4 million a year or $68,000 per job. If you assume the origination-only cost is double the Department’s rate, then the figures drop to $64 per loan, $723.2 million a year, or $62,619 per job.

But here’s the rub. While we know what these services do, we do not actually know if they are effective. Sallie Mae estimates that its about 30 percent more effective at preventing loan defaults than the Direct Loan program, but the report looks at all of its services as a whole, meaning there is no way to judge what services actually contribute to default and which ones are ancillary. It also does not break out the effectiveness of services provided upfront as part of the origination process and those given just-in-time when the borrower enters repayment, at least a year after taking out the loan. Without better information here, there’s no way of knowing if spending an additional $60 or so of taxpayer dollars per loan on these features is a good use of resources or not.

The current jobs discussion also fails to think long-term. The reforms are designed to funnel additional money to students in the form of larger Pell Grants and also provide more assistance for college completion efforts. If this assistance helps more of the 6.3 million recipients graduate, then those individuals will be more likely to obtain jobs. Even a 1 percent increase in the number of these recipients that graduate would produce more than 63,000 individuals that are more employable–easily overshadowing all of the industry job losses.

The Federal Family Education Loan Program is just that, a federal initiative designed to provide loans to students. As such, its fiduciary interest to the taxpayers is to minimize the number of jobs and costs it consumes to provide that service. We know what it costs to just provide the capital to students from the Department’s perspective. Now, however, we must ask if it’s worth spending hundreds of millions in extra dollars for services that have an indeterminate outcome on actually assisting students just to preserve some jobs versus directing those same dollars toward other functions that could help significantly larger numbers of students graduate from college and obtain jobs of their own.