Market troubles hit student loan program

NEW YORK, Feb. 13 (UPI) -- A state program in Michigan that makes student loans said it was suspending its Alternative Student Loans program due to problems on Wall Street.

"Due to the current and unprecedented capital market disruption, there is not sufficient available capital to continue making MI-Loans," the program's Web site announced.

The problem can be traced to an obscure market called auction-rate securities, The Wall Street Journal reported Wednesday.

In Tuesday's securities auction, about $10 billion of $20 billion worth of securities didn't generated high enough bids. That pushed interest rates for those holding the securities as high as 18 percent, the Journal reported, as "penalty" rates are imposed when an auction fails.

In Tuesday's auction, student loan authorities in Montana and Mississippi also held securities that failed to sell, the report said.

Deerfield Academy in Massachusetts, Carnegie Hall in New York and San Francisco's de Young Museum rely on the auctions, the report said.

The Michigan Higher Education Student Loan Authority, which also relies on this market, provides loans for students in more than 100 Michigan colleges and universities.