Student Loans Are Feeling the Impact as Credit Crunch Roils Bond Markets

The student-loan industry is the latest market to be hit by the global credit crunch, a development that threatens to drive up the cost of college borrowing and limit access to private student loans.

At a time when the cost of higher education is increasing and college debt is building, student-loan programs in Michigan and Montana hit a roadblock earlier this month when they tried to sell bonds that help pay for their loan programs. Nobody was buying. Iowa, meanwhile, is asking for help from local banks until it can sell its bonds.

Iowa and Montana officials are warning that loans could be harder to obtain, and that interest rates could become higher, as student-loan officials scramble to navigate the tumultuous bond market. Michigan had to suspend one of its loan programs altogether, for an...