Tighter credit hits student loans

WASHINGTON -- Democratic members of the House are asking the Bush administration to shore up the shaken student loan market before the situation worsens and students are deprived of the chance to attend college.

Rep. Paul Kanjorski, a Pennsylvania Democrat who chairs the House Financial Services subcommittee on capital markets, and 20 fellow Democrats sent a letter Friday to Treasury Secretary Henry Paulson and Education Secretary Margaret Spellings urging them to act.

"We urge you to work without delay … to address this problem before it significantly decreases access to higher education opportunities for students and their families," the letter said.

Michigan said this week it is temporarily suspending one of its college loan programs, citing the "current and unprecedented" distress in the financial markets, while Montana's student-loan agency tried unsuccessfully to sell $300 million in bonds in the hobbled market.

Treasury spokeswoman Jennifer Zuccarelli said the department was reviewing the letter.

In recent weeks, distress in the market for auction-rate securities -- short-term investments that are a popular way for companies and some wealthy investors to store their cash -- has rippled into the student loan market.

State student-loan agencies as well as student lenders such as Sallie Mae are among the host of borrowers that rely on the $300 billion auction-rate market to raise money to fund the loans they make and the projects they build.