The Student Assistance Foundation of Montana has urged Congress to pass an amendment to address a growing problem of availability of student loans nationally because of the current national liquidity and credit crisis in the industry.

In a resolution adopted April 9, the SAF board recommended Congress amend a bill by Sen. Edward Kennedy, D-Mass., said Jim Stipcich, SAF president and chief executive officer. Stipcich made the resolution public Wednesday.

“The SAF board adopted the resolution basically to express concern about access to student loans, not specifically to Montana, because Montana is in a better situation, but for the rest of the country,” Stipcich said.

SAF is a nonprofit group that serves as the business manager for the Montana Higher Education Student Assistance Corp., which obtains the financing.

The congressional delegation members said they want to work on a solution.

Gov. Brian Schweitzer said his administration all but predicted the financial problems faced by SAF and MHESAC when Budget Director David Ewer in October 2006 said “they had huge amounts of debt leverage.” The governor criticized SAF and MHESAC for operating secretively, leveraging a small position of Montana student loans into a national business, all without oversight from bankers and state government.

The student loan industry, like other nonprofit organizations and for-profit businesses, is reeling from the credit and liquidity crisis on Wall Street. They have faced increased borrowing costs and have had difficulty finding institutional investors to buy their debt.

MHESAC is facing the first net operating loss in its future, and has seen its borrowing costs on its outstanding financings increase by $14 million over the past nine months, Stipcich said earlier this week.

The SAF board endorsed a “standby loan purchase commitment” plan proposed by the Education Finance Council, a trade association for nonprofit student loan groups like the Student Assistance Foundation around the country. If enacted, here’s how it would work:

It would require the U.S. secretary of education, or other federal agencies, to provide standby loan purchase commitments with lenders participating in the Federal Family Education Loan Program (FFELP) for student loans made after Oct. 1, 2007.

A key benefit, Stipcich said, is that it would ease concerns over the availability of funding for federal student loans for the 2008-09 school year and beyond. Loans could be delivered quickly under the proposal without forcing schools and students to abandon the FFELP delivery system, which provides 80 percent of the federal student loans nationally.

“We don’t think it would have any impact on the federal budget,” he said, “and second, it is a simple, efficient and effective solution to the lack of liquidity in the marketplace.”

Although a number of options are before Congress, Stipcich said the SAF board prefers this proposal.

Asked if it was a federal bailout, Stipcich said it wasn’t.

“The mere existence of a standby commitment to purchase should allow us to do the refinancing,” he said. “Thus, we should never have to sell the loans to the feds.”

It would ensure that students will still have access to loans this fall, he said.

“I do not believe that the loans would ever be sold under this proposal,” he said. “Clearly, we wouldn’t ever be advocating this if we thought it would be a major cost to the federal government.”

Stipcich emphasized the need to do something now so students can get their financing in place for loans to be made in July and August. MHESAC has $175 million in place for loans to Montana students for the 2008-09 academic year, but Stipcich wasn’t sure about future years, unless congressional action is taken.

Schweitzer was highly critical of the two nonprofit student loan groups, saying:

“Very early in our administration, we recognized that this was an industry that was shaky at best, that this organization, MHESAC and SAF, had leveraged a very small position of providing college loans to Montana students into handling transactions for college loans all over America and, worst yet, buying and selling commercial paper that had nothing to do with loans for Montana college students.”

Schweitzer said when administration officials requested information from MHEASAC and SAF two years ago, they learned they didn’t abide by Montana’s open meetings law then, that they were using Montana’s bond capacity to raise money and proposed constructing a new building with a no-bid contract.

“We were told it was nobody’s business,” Schweitzer said.

In response, Stipcich said the issue goes beyond MHESAC and SAF and is about getting loans for Montana college students.

Members of Montana’s congressional delegation said they are aware of the problem and want to help find a solution.

Bridger Pierce, spokesman for Rep. Denny Rehberg, R-Mont., said the House will take up the student loan issue Friday, and Rehberg is “going to be working on a responsible compromise that obviously protects the Montanans who are using these loans and continues to provide the same access for these students to these loans.”

“There’s a lot of stuff to sift through and Jon’s looking at it,” said Aaron Murphy, spokesman for Sen. Jon Tester, D-Mont. “But the bottom line is college needs to be affordable for Montana families.”

“Max is keenly aware of the problems facing the student loan industry in America,” said Barrett Kaiser, spokesman for Sen. Max Baucus, D-Mont. “His top priority is making sure that Montana students can afford college so that they can get a good job and raise a family here.”