From college loans to savings accounts to the job market, students have a lot to think about when it comes to the intersection of Wall Street and University Avenue. The recent economic crisis holds many potential effects for University students, a few of which could be worrisome.
The flailing markets are going to make private student loans harder to get, which will directly affect any student who has a loan or is thinking of applying for one. However, federal loans shouldn’t be affected and interest rates are scheduled to decrease.
Private lines of credit of all types are going to be affected by the economic crisis, said Tim Duy, an economics professor at the University. The financial crisis restricts funds in the banking system, which will make banks more reluctant to lend money because they have less money to give, he explained.
To discourage bankers from borrowing, Duy anticipates that banks will increase interest rates and make loans harder to get by holding people to higher credit standards or requiring co-signers. Banks may also decrease the amount of money per loan.
“That seems to be the mechanism by which students will be most affected,” Duy said.
That is not good news for students.
The number of students who borrow grows every year. Private borrowing has also increased from $2,017 in the 1996-97 school year to $17,100 in 2006-07.
The average amount of total loans is also growing when it comes to borrowing federal dollars, which accounts for more student borrowing than private loans do. On average, students graduating in 2007 borrowed $18,728 in federal funds.
However, in reference to how the crisis might affect federal loans, “there are no problems expected at all,” University head of financial aid Elizabeth Bickford said.
The University gets its financial aid money directly from the federal government. This money bypasses a third-party lender, like a bank or thrift, which other schools go through to lend students money. “Fortunately, we’re a direct lender,” Bickford said. The collapse “has sort of been a non-issue.”
Federal student loans are usually Stafford loans, which students don’t pay off until they graduate, and come in two types: subsidized and unsubsidized. With the former, the government pays the interest, and with the latter, the student is responsible for the interest. All interest rates on Staffords are fixed by the government and do not fluctuate with the market impulses or changes.
Interest rates on Stafford loans have actually gone down almost a percentage point this year, to 6 percent. They are expected to decrease gradually over the next few years and eventually dip to 3.4 percent because of a recent piece of federal legislation Congress passed before the collapse happened.
They are set to return to 6.8 percent in 2012.
Not only will educational loans be harder to come by and cost more, but the same principles that affect student loans will apply to auto loans, house financing, credit cards and store credit – all of which could potentially affect students, Duy said.
“The channels are very numerous that a credit contraction could work through,” Duy said. “We don’t want it to get any worse.”
Loans and credit aren’t the only college funding that students should be thinking about. Many students have 529 College Savings Plans, which are money market accounts set aside specifically as savings for tuition. Because they are in the money market, the balances of these plans are directly affected by changes in Wall Street, meaning that if stocks drop, so does the amount of money available in a 529.
The nation’s financial crisis is directly affecting the money supply and lending practices, but also indirectly affecting other student-related issues. According to Herb Chereck, associate vice president for Enrollment Services at the University, national trends indicate more students are returning to school as they pursue career changes or find themselves recently unemployed.
The collapse is shrinking the number of jobs in the financial sector, a development that will mainly affect business and economics majors. Job openings in banking, finance and real estate will become more competitive and harder to come by, according to recent New York Times articles.
Sarah Stout, a junior in the business school, said she’s not worried about finding a job, and thinks being qualified and well-educated will overcome a narrower job market. She is, however, considerably stressed by immediate financial concerns – namely, tuition and cost of living.
Business graduate student Tim Seymour isn’t worried about the economic crisis, but he finds it fascinating, particularly the proposed bailout. He’s optimistic about the situation, and he said that “as long as Alan Greenspan still lives, all is well in the world.”
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