The Montana Higher Education Student Assistance Corp. had to pay an estimated $3.48 million more in interest costs the past five weeks to finance student loans than it would have if national auction markets had functioned normally.

"It's a real loss for these 35 days," Jim Stipcich, president of the Student Assistance Foundation, MHESAC's business manager, said in an interview Friday. It amounts to about a 10 percent increase in the MHESAC's interest costs.

Since mid-February, the national credit and liquidity crisis has pummeled student loans organizations, hospitals, museums and other institutions that use what are known as auction-rate funds for financing.

Stipcich remained hopeful the national credit and liquidity markets will improve.

"Look how rapidly this problem came along," he said. "In an optimistic view of the world, that number could change just as quickly. Because we have variable-rate assets and variable-rate debt, our spreads change every day."

This week, failed auctions totaled $434.6 million for bonds previously issued by MHESAC to finance student loans, he said.

That brings to $1.29 billion MHESAC's total cumulative auction bonds that have failed since Feb. 11.

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

Institutional investors that owned the bonds can re-buy them with the new interest rates.

If they choose not to repurchase these bonds, they can sell them to another institutional investor at an interest rate set by a preset formula based on market indices.

Since last month, few institutional investors on Wall Street are repurchasing the bonds, and they can't find anyone to buy them.

This week's total included $349.6 million in tax-exempt bonds previously issued by MHESAC. They were the first to face second unsuccessful efforts by bondholders to resell their bonds to other bondholders. Interest rates on these bonds reset at between 4 percent and 4.8 percent versus the previous rate of 10 percent after the earlier failed auction.

Also failing this week were $89 million in taxable auction bonds previously issued by MHESAC. They were the second set of bonds to encounter unsuccessful auctions for a second time.

The interest rates on these bonds were reset at between 4 percent and 4.1 percent, compared with the previous 4.3 percent to 4.6 percent rates.

Stipcich said MHESAC has been working hard trying to refinance its debt. Stipcich has been to Wall Street three times since mid-February to work on it. This week, MHESAC took a first step by starting the process to redeem or call $70.6 million in taxable auction bonds it had issued. That means MHESAC will pay the bondholders.

"We can redeem them on any interest reset date," he said. "For most taxable bonds, it's every 28 days."

Stipcich said this is not refinancing.

"The net effect is the total amount of failed auctions will go down and the total amount of outstanding bonds will go down," he said.

Once again, Stipcich emphasized that MHESAC has $175 million in financing in place for Federal Family Education Loan Program (or FELP) loans available for Montanans for the 2008-09 academic year.

This money has been invested in a different vehicle known as variable rate demand obligations.

In addition, MHESAC's floating rate notes interest rates that were reset this week came in at 2.25 percent below the last change in December, he said.

MHESAC underwrites FELP student loans for 85 percent of Montana college students.