Until the 1990s, the primary program was the federal guaranteed loan program under which private lenders like Citibank, Sallie Mae or Bank of America made the loans to students. They were given a helping hand from the government, which paid subsidies to the lenders and guaranteed them against default.

Bill Clinton campaigned for president on the notion of expanding the federal government’s role as student loan guarantor into a more central position as the direct lender. The idea was that this would prove cheaper and simpler for students and be less costly for taxpayers because borrowers would pay interest to the federal government instead of to the lenders.

The program went into effect in 1994. The Democrats expected it to become dominant. But unwilling to be muscled aside, private lenders began offering schools and students a variety of benefits like scholarship money and lower interest rates and fees.

Tom Joyce, a spokesman for Sallie Mae, said, “The private sector program has better prices, better product selection, better service and better technology.”

For a few years after direct lending went into effect, it grew quickly. But as student loan volume has risen, climbing above $85 billion in 2005-6 from just over $30 billion 10 years earlier, the government’s share as a direct lender has declined, and now amounts to less than a quarter of the total.

“When direct lending was created, the initial assumption was that the bank-based program would be quickly overwhelmed by the government program,” Mr. Hartle said. No one counted on the strength of the reaction from the lending industry, he and others said.

The Education Department fought back. Richard W. Riley, then the secretary of education, tried to make the direct lending program more competitive in 1999 and 2000 by reducing origination fees and interest rates. The private lenders sued, saying Mr. Riley had no authority to do this because these rates were set by Congress under the loan legislation. (Last year, lawmakers set the interest rate on new Stafford loans, one of the most popular federally guaranteed loans, at 6.8 percent; many private lenders offer to reduce that rate for borrowers who make payments on time or meet other goals.)