Student loans have been making a meaningful contribution to aggregate demand. If origination slows it’s another negative for growth and output to add to the tax hikes and spending cuts.

This is not to say I favor the student loan channel for education. Quite the contrary, in fact. But just like the savings and loan credit expansion leg propelled the Reagan years, the .com and y2k credit expansion the Clinton years, and the sub prime credit expansion the Bush years, to a much lesser extent the student loan credit expansion has supported the current modest recovery. And when they end the support ends.

The right way to do it is with a tax cut and/or spending increase, but that’s another story…