Crocodile tears are streaming down K Street and up Capitol Hill from bankers crying about the student loan subsidy rates Congress is poised to cut.

But think tanks, the Congressional Budget Office and lawmakers such as Rep. Tom Petri (R-Wis.) say lenders’ complaints are a diversion to keep Congress from truly cutting into the profits of the $85 billion student-lending industry.

The federal government guarantees banks, private lenders and Sallie Mae a profit on every student loan originated under the Federal Family Education Loan program. Lenders also are insulated from risk as taxpayers reimburse them when a borrower defaults.

Needy students also may borrow money for college directly from the federal government via the Education Department.

The CBO determined that if Congress utilized “the most efficient” student-lending program available, which it found to be the direct-lending program, the government could save $10 billion over 10 years.

The New America Foundation, a watchdog group and think tank, estimated the savings would be closer to $15 billion to $20 billion.

But instead of proposing to kill the guaranteed-loan program, both the House and the Senate opted to overhaul it by cutting lender subsidies, decreasing interest rates, funding more Pell grants, and aiming to curb abuses in the system such as kickbacks and improper relationships between lenders and university officials.

Members of Congress believe this approach is a combination of good policy and good politics. The top 100 banks making student loans can be found in almost every Congressional district in the country.

“Sen. [Edward] Kennedy [D-Mass.] believes very strongly that the direct-loan program is cheaper for taxpayers,” said one Senate aide, who did not want to be named. “Other lawmakers have strong interests from banks in their states and those opinions are heard loudly in the process. But we have the opportunity to produce a package with $17 billion in additional student aid that would have been unthinkable a year ago.”

The House already passed its version. The Senate is scheduled to take up the measure, which is expected to pass, this week or next.

Lenders spent $16 million lobbying Congress last year.

And lenders are not the only ones whispering in Members’ ears.

House Education and Labor Chairman George Miller (D-Calif.) obtained a copy of Sallie Mae’s memo detailing its strategy for working with Capitol Hill’s new Democratic majority.

The main components were: hire Democratic lobbyists and stop contributing the bulk of its campaign donations to Republicans; create grass-roots opposition to subsidy cuts by enlisting financial aid officers and other trade groups to warn Congress against them; convince historically black colleges that the cuts would disproportionately hurt their students; and use its GOP allies.

Sallie Mae, which sees a 43 percent return on its student-loan portfolio according to the New America Foundation, planned to enlist House Minority Leader John Boehner (R-Ohio) and Rep. Howard McKeon (R-Calif.), now the ranking member on the Education Committee, in its effort to convince the White House to use “the right budget language.”

There is no proof that Sallie Mae followed through with its last tactic.

In a statement, Boehner blasted the House proposal immediately after it was passed last week.

“This so-called ‘student aid’ bill breaks a number of Democratic promises to make college affordable and accessible for all — instead, they shamefully pushed a bill that uses taxpayer dollars to erase the student loan debts of Members of Congress and lobbyists, and forces working families to subsidize college graduates,” Boehner said.

Petri, who has advocated killing the guaranteed program for years, said the House measure is good progress when one considers the strong opposition that exists in Congress to his more aggressive proposals.

“I think we’ve been making real headway,” said Petri, who was leapfrogged by McKeon to lead the Education Committee when Republicans controlled the House. “I think more people are aware that the guaranteed program is not a very good program and prone to abuses.

“There are a number of people in both parties that have co-sponsored [stronger] legislation, but there were also people in both parties who didn’t like the idea very much and wanted to keep the guaranteed program pretty much the way it was,” Petri said of his past efforts to end the guaranteed program.

While the concept of cutting out the middleman seems logical to many people who follow banking issues, lenders have managed to muddy the waters.

“I think they’ve done a really good job of confusing Members,” said Stephen Burd, senior research fellow at the New America Foundation. “The way the [guaranteed] program works is so complicated, that it’s easy to confuse people about the cost and benefits.”

Joe Belew, president of the Consumer Bankers Association, which represents the biggest student-lending banks, said the subsidy cuts are just a back way into eliminating the subsidized program.

“I think the direct-lending program has many more supporters in the majority now and I don’t think it’s going away,” Belew said. “But I think the emphasis now is on squeezing more out of the private lenders to fund entitlement programs.

“Our view is there is not excess profitability in student loans. If you cut it further, the first place it’s going to hurt is student borrowers.”

Belew said the creation of the direct-lending program in 1993 forced banks to provide students with incentives to use commercial lenders.

For example, many banks pay students’ loan origination fee now. Banks may have to rethink that if the subsidies are cut too deeply, he said.

Congress enacted legislation last year to phase down origination fees to 1 percent.

“Many, many people prefer the customer service of the private sector to the customer service of the Department of Education,” Belew said in explaining why he thinks 600 schools have left the direct-lending program since its inception.

But even if Congress goes ahead with the cuts, Belew said his lenders will remain competitive.

“I don’t think [the direct-lending program] will be particularly cheaper,” Belew said. “I think the two programs will continue to compete on somewhat of an even keel.”