Large student agency stops all lending -- a harbinger of doom?

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Back on February 16th, Democratic Congressman Paul Kanjorski and 20 other members of his party sent a letter to Treasury Secretary Henry Paulson asking him -- without being specific -- to do something to shore up the student loan market: "We urge you to work without delay ... to address this problem before it significantly decreases access to higher education opportunities for students and their families."

Student lenders have since been insisting that everything is peach in that market but now the first shoe seems to have dropped. The Pennsylvania Higher Education Assistance Agency, one of the largest student lending agencies in the country, has announced that it will stop making federal-guaranteed loans starting in early March.The agency's interim chief executive James Preston said that "Widespread lack of confidence in the capital market has spilled over into other asset classes, driving up our cost of borrowing and denying us the capital needed to fund new student loans."

The agency says that it has referred students to other agencies and that "From a student perspective, there should be no disruption or difficulty." Of course, that might be true for awhile but the Pennsylvania Higher Education Assistance Agency can't be the only one that's having problems with its cost of borrowing -- Things could get a lot worse if similar agencies follow suit.

Long-term, a decline in student lending would probably be, dare I say it, a good thing. The abundant availability of student loans has led many students to take on more debt than is wise, attending expensive private colleges when more affordable alternatives are available.

And getting ahead financially -- saving for retirement, buying a house, saving for your childrens' college education -- is tough when you have large debt service payments for your education.
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