More Fuel on the Student Loan Fire

Democratic congressmen have both politely and not so politely rejected Obama's proposed student loan reforms, which would replace private lenders with direct government loans and redirect any savings to fund needy students' tuitions. Even some student loan enthusiasts have basically thrown up their hands, tisk-tisked the president for not putting up a fight, and quietly moved on. But today, two news stories suggest the debate could get a second wind.

First the New York Times editorial page today weighed in unequivocally on the side of direct lending - not exactly shocking, but an significant endorsement nonetheless. More importantly, from today Wall Street Journal, we get word that that TARP cash simply is not moving in some of the nation's largest banks, and one of the most troubled markets is student lending:

Particularly problematic: continued deterioration in commercial real estate and general business lending, as well as the credit being made available for student and auto loans.

This is bad news in the short term, obviously, since tight credit makes it harder for needy students to pay for college. But inasmuch as it fuels the student loan fire, it could actually work in Obama's favor in the long-term. As the unmet need for student loans increased, Obama could backdoor his way into expanding direct lending to students by further appealing to the need to replace the current holes in private student loans. Another crisis, in other words, could become another opportunity to tiptoe toward Obama's long-term goal to reduce the impact of private student lenders.