The first warning signs of trouble in the student-lending business came early this year, when borrowers with less than stellar credit who attend technical and career-oriented schools couldn’t get a loan.

Nobody paid much attention.

Now, months later, the middle-class students who are deciding where to go to four-year colleges are finding tightened lending standards and fewer options to borrow money.

Everybody is paying attention now.

Politicians and education administrators in Washington are racing to create a type of emergency safety net, including making the federal government the “lender of last resort” to offer loans to students who can’t get money anyplace else.

“There is widespread belief that we will have a real problem, that the lender of last resort, or some other solution, will have to be used this year,” said Education Secretary Margaret Spellings, who has been meeting with state agencies and nonprofit lenders that guarantee federal loans on behalf of the government.

Also, the House of Representatives approved a bill to loosen credit by raising limits on how much an applicant can borrow from the federal loan program, and give the Education Department the authority to buy loans from student lenders to ensure that they have access to capital and can keep issuing loans.

The Bush administration last week backed that idea.

Those proposals would give the federal government, and taxpayers, a bigger role in the student loan business to fill gaps in the private market.

Isn’t that always the way? A problem has to grow into a crisis before the government acts. Wouldn’t it be refreshing if our elected and appointed leaders listened earlier and moved sooner to head off problems?

And where were the regulators who could have curbed the private-market abuses that led to the mess in the first place?

The root cause of the student-lending crunch has also caused the spike in foreclosures, the collapse of house values, huge losses at commercial banks, and the failure of big investment companies such as Bear Stearns & Cos.

It stems from the glut of subprime loans and the purchase of those loans by investors, who provided the liquidity to make more loans.

Now that many of the loans are not being paid back, there have been massive losses. Banks and investment companies have stopped making and buying the loans, causing a liquidity crisis. That has resulted in a tightening of credit for all borrowers, including house buyers, businesses and students.

It’s become a big problem for students. Already, dozens of private lenders, who made $6.7 billion in education loans last year, have fled the market because of their inability to sell the loans to a secondary market. It didn’t help when Congress last year cut the subsidies paid on student loans, narrowing the profit margin for lenders.

The problem for students is hitting home especially hard this spring because many college applicants have only until May 1 to decide where they want to go to school. With the cost of a college education running above $45,000 annually at many schools, one factor in the decision is how to pay for it.

Student loans plug the gap between the tuition, room and board and fees charged and the grants, scholarships and financial aid offered by the school. Almost everybody has to borrow. A college graduate’s average debt now tops $20,000, making picking the loan with the lowest rates and fees and best terms critical to family finances.

But there are problems with several financing sources:

•Many parents borrow money through home-equity loans, but with house prices plummeting, there is not much equity left to borrow against.

•Another option is private loans. But many lenders have stopped making private student loans. The list includes some of the biggest banks in the country, such as Bank of America and Citigroup. The fallout for students is that private lenders often offered incentives, such as waiving fees, discounts and a cut in interest rates for a history of on-time payments.

•Other lenders, such as College Loan Corp., Student Loan Xpress and NorthStar Education Finance, have pulled out of making federally backed loans. By one government estimate, dozens of lenders, making up to 13 percent of the market, recently stopped making loans under the federal student-loan program, in which the government subsidizes and backs student loans.

The result is fewer lenders. Whenever you reduce options, consumers usually pay more.

Not all the money has dried up. The student-loan business is a $400-billion market and many lenders are staying the course. But financial aid officers are scrambling to find alternatives to the lenders who dropped out of the business.

The Education Department says the depth of the problem won’t really be known until this summer, when first-time and returning students have to come up with the money to pay for fall tuition.

In anticipation, the government plans to extend the direct student-loan program. Already, more than 100 colleges have applied to use loans made by the government. Under direct loans, the government sets the rates and fees and students borrow money directly from the government.

Education Department officials say they could handle double the $13 billion in direct loans they processed for the fiscal year that ended last June 30.

On top of that, the government would create a “lender of last resort” program, under which students could borrow from the nonprofit companies and state agencies that guarantee federal loans on behalf of the federal government. The details are still being worked out.

One thing seems clear.

Families, already struggling to pay rising food and gasoline bills, may also end up paying more to borrow money for their children’s education, if they can find loans.

That burden could have been lessened if their government was paying attention earlier, and reacted sooner.

jkostrze@projo.com