Last night I read an article about the difficulty students are having borrowing money to fund their education (see No Funds to Lend to 40,000 Students). This is not a new story. Bernanke testified on the topic back in February (see Bernanke on Student Loans). There have even been ongoing conversations on the topic at my institution for the better part of eight months now. But this is the first I’ve heard of the crunch putting students at immediate risk for the upcoming semester (which starts in as little as 5 weeks).

According to the Boston Globe article:

The Massachusetts Educational Financing Authority yesterday said it will not be able to provide student loans this fall for the first time in its 26-year history, leaving more than 40,000 families without an important source of tuition funds just weeks before college classes begin.

“As a result of our problems and the continued dislocation of the capital markets, we have been unable to raise funds for the coming academic year,” said Thomas M. Graf, the authority’s executive director.

Across the country, more than 50 lenders have stopped making federal or private student loans this year, largely because of the turmoil in the nation’s credit markets that began with the subprime mortgage crisis last summer.

This news saddens me. I am saddened that the financial crisis has had such extensive a reach that financial institutions are not able to fund one of our nation’s most valuable investments – education. I am also saddened that otherwise qualified students, who might not be able to afford the substantial costs of tuition on their own, may be forced to accept uncompetitive loans at very high rates, or in the extreme, forced to sit out of school until the economy improves.

I have one proposal.

Since many universities have amassed fantastic endowments (see Wikipedia on Endowments), now might be the time for them to tap those endowments to make loans on a temporary basis (until conditions improve) to their own students. Now there are obviously large disparities across universities in their endowments; however, I suspect that many universities are in a position to support such programs. After all, it would not represent a pure expense for the school (in the form of a non-repayable grant), but rather, an investment with a potentially healthy return.