"There is not a pool of investors for ten-year notes," Cannon said.
Such a system would give preferential treatment to direct lending, he added, since the government can absorb such volatility more easily than private lenders.
Although the provision would not take effect until next July, supporters of bank-financed loans want Congress to repeal the rule before lawmakers adjourn this year. The reason: most students apply for aid in the spring, said Cannon, and lenders begin making loan decisions at that time as well.
One possible compromise is to give students another cost break in exchange for repealing next July's change. One such scenario is a cut in origination fees students pay when they take out loans.
"We need to look at reducing costs for students in some other way," Cannon said. Cutting origination fees "would be a real, tangible benefit they could bank on, rather than rely on an interest-rate system that is historically volatile."
Private lenders are raising issues at a time when they enjoy strong support in Washington, D.C., because of failures in the government's direct loan system. The Clinton administration had to shut down one part of that program this summer because its contractor could not deal with an applications backlog.
Both Republicans and Democrats in Congress are looking to the bank-financed system to fill the void.
Adelsheimer acknowledged there is "frustration" among students and education groups about the direct lending system. But USSA also believes students deserve the lower loan costs promised four years ago.
"We need policies that focus on students as important customers," she said.
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