Nearly $400 million worth of auction bonds failed the past two weeks for auction bonds previously issued by the Montana Higher Education Student Assistance Corp. to finance student loans.

The failed auction bonds totaled $389.3 million — including $311.8 million in tax-exempt bonds and $77.5 million in taxable bonds, said Jim Stipcich, president and chief executive officer of the Student Assistance Corp., which is MHESAC’s business manager.

That brings to $1.65 billion the total MHESAC bonds owned by bondholders that have failed in auctions since Feb. 11. Some have failed for a second time.

Financing for bonds for student loans, hospitals, museums as well as for the private sector has been caught up in the credit and liquidity crisis on Wall Street since mid-February. MHESAC is like many nonprofit and for-profit companies trapped in the squeeze.

It has left many student loan organizations reeling. Some state student loan organizations have suspended their programs, but Montana has not.

Despite these problems, Stipcich again said MHESAC has money for loans for the upcoming school year.

“We would like to emphasize that MHESAC has financing in place for FFELP (Federal Family Education Loan Program) loans for Montana students next fall — $175 million for the 2008-09 academic year,” Stipcich said Friday.

MHESAC underwrites FFELP loans for 85 percent of Montana college students.

Auction bonds, sold in $100,000 units, are considered long-term debt, but they roll over every 28-35 days when their interest rates are reset to match current market rates.

The institutional investors that bought the auction bonds can re-buy them at the new interest rates. If they decide against purchasing them again, they can sell them to another institutional investor at an interest rate determined by a preset formula based on market indices.

Since mid-February, however, few institutional investors have re-purchased the bonds, and no one will buy them. On Thursday, MHESAC completed the redemption of $9.3 million in taxable bonds. That is a first step in finding other places to invest the funds.

Stipcich said MHESAC is continuing to work on ways to restructure its auction rate bonds.

He said its ability to restructure and refinance depends on a number of factors, including the availability of certain financing vehicles, if applicable, and liquidity or credit enhancement facilities, or both.

MHESAC has issued about $2.16 billion in debt to finance student loans.

Besides the $1.26 billion in auction bonds, MHESAC has $900 million in other debt. Of that, $725 million is in fixed-rate bonds, or bonds financed by at a fixed rate spread over a given index.

The remaining $175 million is invested in variable-rate demand notes issued in December 2007 that require a third party to buy them if sellers want to sell them and other buyers don’t surface.