WASHINGTON (MarketWatch) -- The credit crunch rippling through the U.S. economy is threatening to cut off college students from loans they may need to attend school this fall, but Congress is working on a fix it hopes to have in place before the heavy loan-application season hits this summer.

With a fire under them as elections approach, lawmakers are looking at plans that would increase some federal student-loan limits and make sure that there are loans available. They also intend to cut a break for parents who have had mortgage problems, insuring their children won't be penalized over credit concerns.

"There's a lot of pressure on Congress," said Mark Kantrowitz, publisher of FinAid.org, a site offering financial-aid information. "There's bipartisan support for passing a fix because neither party want to be blamed for a collapse of the student-loan system."

Last week the House passed a package that would raise federal loan limits and increase loan availability by having the Department of Education purchase federally guaranteed loans, moves that President Bush supports. The Senate is working on companion legislation.

On Wednesday, administration appointees from the Education Department and Treasury sent a letter to Congress offering support for student-loan legislation that would purchase federal family education loans. White House spokeswoman Dana Perino told reporters that the Senate should act promptly on a student-loan bill, and noted the approach of the peak season for loan applications in July and August.

"Implementing this authority will take time, so it is imperative to move this legislation without delay if this authority is to be used in the upcoming school year," Perino said. "We do not want to see any students unable to attend universities this year because of the credit crunch, and that's why we are taking appropriate steps now to confront that challenge should it arise."

Jaret Seiberg, an analyst with the Stanford Group Co., expects that a bill will be signed into law before Congress goes on vacation in July.

"There's tremendous momentum to prevent a student-loan credit crunch from impacting students. We are expecting both Congress and the administration to bend over backwards in the months leading up to the election," Seiberg said. "When lawmakers decide they want to act quickly, they can do it."

In recent months, dozens of lenders have ended or suspended participation in federally guaranteed student-loan programs. Earlier this month, student lender Sallie Mae suspended participation in the federal loan-consolidation program. The company said last week that the current environment is the most difficult it's seen in its 35 years of student lending.

"It has become obvious that we can only meet the enormous student credit demands we are seeing at Sallie Mae if there is a near-term, system-wide liquidity solution," said Chief Executive Albert Lord.

Subprime help

There are also proposals to help students from families with mortgage problems.

The House bill contains a provision that would enable parents with mortgage delinquencies to get a college loan for their children. A separate proposal offered earlier this week by Sen. Chris Dodd, D-Conn., would prevent parental disqualification for one of these loans because of foreclosure on a primary residence during the recent mortgage crisis.

It is "unacceptable and wrong" for students to be denied access to loans because of the mismanaged housing market, Dodd said.

FinAid.org's Kantrowitz said a mortgage-related student-loan law could be a precise tool to help students who would otherwise be hit by a double whammy of housing problems and student-loan denial.

"It kind of seems at cross purposes for families that are experiencing financial difficulties to be denied access to a loan," Kantrowitz said.

Seiberg of the Stanford Group said it would be hard for Washington politicians to oppose a housing-related student-loan bill.

"When you have to make a decision on whether you err on the side of guarding against credit loss or err on the side of educating a young adult, lawmakers are almost always going to opt for the latter, politically it makes more sense," Seiberg said.