RALEIGH, N.C. - Lacey Mogy didn't know much about student loans when she enrolled this year at the School of Communication Arts in Raleigh - except that she needed several if she was going to study digital film production.
Then her mother received a letter telling her that one of those loans won't be renewed next year. The lender is getting out of the student loan market.
Now Mogy is quickly learning about the link between the national credit crunch and the availability of student loans for fall.
The first lesson she learned is one that higher education leaders want to stress: The vast majority of students will be able to get the student loans they need before classes start in the fall.
But decisions by more than 50 lenders to scale back participation or drop out of the federally guaranteed student loan program haverattled Congress and triggered proposals to make sure student loan money keeps flowing.
The problem isn't the effect of losing 50 lenders: There are at least 2,000 that still participate in the government-backed loan program. The problem is no one can say for certain how lenders will respond to protracted problems in the credit markets.
"This is an issue today for students who rely heavily on private loans, which is a very small part of the market," said Steve Brooks, director of the state Education Assistance Authority, which oversees most of the loans made in North Carolina. "But there is clearly a liquidity crisis that is making it more expensive for all lenders to do business. That could be a big problem if it persists."
Big universities would be the last to see disruptions in student loans, because their default rates are low and ties are strong between lenders and their financial aid offices, Brooks said.
But smaller, for-profit schools will be among the first to spot problems if the market tightens significantly.
"People are paying close attention, but it has not been an issue at this point," said Jack Henderson, president of the N.C. Association of Career Colleges and Schools. "We aren't seeing students who can't find the loans."
Most students are unaware of administrators' financial aid concerns, said Debra Hooper, head of the School of Communication Arts in Raleigh. "As long as we can put together a financial aid package for them - and we can - the details of the national market aren't that important," she said.
But the importance of the loans is obvious to Mogy and her classmates. Depending on the program students choose, tuition and fees over two years can cost $15,000 to $40,000 at the School of Communication Arts.
"Loans play a huge role in my being here," Mogy said. "I just wouldn't be here without them."
The concerns about the student loan market were triggered by a one-two punch that no one saw coming last year. The first hit came in the fall, when Congress cut subsidies to the private lenders that handle student loans.
The decision was little more than the culmination of a political fight over how to cut the federal budget. The government gives private banks and lenders billions in subsidies a year to encourage them to offer student loans. Many in Congress felt the subsidies were too large and an easy cost to cut.
But when the credit markets started freezing up late last year, lenders complained that the reduced subsidies made the loans unprofitable. Some lenders scaled back. Others got out entirely.
The loss of lenders in a market that is historically stable and lucrative has triggered questions about how many more might leave.
That has left Congress scrambling to create other options, such as having the government buy loans from private lenders to guarantee a steady supply of cash.
"Should a collapse occur in the student loan market, which doesn't seem likely at this point, it would be a catastrophe if we didn't have an alternative system in place," said Molly Broad, former UNC system president and incoming president of the American Council on Education.