By Libby George, CQ Staff

A bill cleared by Congress earlier this year to ensure student loan availability in the short term was widely accepted as just enough to avert a major crisis.

But with financial markets still cool and the mechanisms of the new and complicated program yet to be tested, any hiccups this month or in early September — the height of loan season — could spur further congressional action.

Even if things go smoothly, some observers say, Congress will need to do more to make sure the federal loan program remains functional beyond this academic year.

“We’re praying it works, but everything, all the good news that we have right now could be reversed in part as we get through August,” said Larry Zaglaniczny, director for congressional relations at the National Association of Student Financial Aid Administrators.

Zaglaniczny is quick to note that his organization is currently just monitoring the situation and not actively advocating for more legislation. But he and others in the field of providing, facilitating and monitoring the student loan market are on high alert as the newly created program is tested.

The law (HR 5715 — PL 110-227) — which Congress quickly cleared to ensure students continue to receive loans through the federally-backed program — addressed frozen markets and lower lender profits by giving the Education Department the authority to purchase existing loans through the end of this academic year. The assumption was that lenders would then have cash to originate more loans.

The law did not, according to department attorneys, give the department the power to advance funding to lenders. That means participating lenders must generate up-front cash on their own. As a result, some lenders have been able to jump in successfully, but others are having difficulty.

Shortage of ‘Bridge Funding’

So far, Sallie Mae and Nelnet — two of the largest loan providers —are signed up and approved for the program, said Dennis Cariello, the department’s deputy general counsel.

“We’re breaking new ground here. The [law] was brand new authority, and we’re very confident it’s going to work,” Cariello said. “Some of the largest lenders in the business have signed up for this . . . new ones approved every day.”

But non-bank lenders, such as nonprofit and state-based entities, are having a hard time coming up with the “bridge funding” needed to make loans to sell to the department.

“It’s like trying to jump start a car with no gas in the tank,” said Mark Kantrowitz of FinAid.org, a Web site about student lending and financial aid. “Many in Congress thought this would be enough. But it turns out the bridge funding is a major impediment . . . they just don’t have the funds.”

According to Kantrowitz’s calculations, 103 lenders have totally suspended participation in the federally backed program. Four state loan agencies — the Pennsylvania Higher Education Assistance Agency, the Massachusetts Educational Financing Authority, the Michigan Higher Education Student Loan Authority and Brazos Higher Education Service Corp. — are among that tally. The Kentucky Higher Education Student Loan Corporation said it had run out of money, but the state has said it will step in to help.