The U.S. economy has struggled in the last two months and has had an effect on elections, banks and even students.
In fact, students might be the group most affected by the economy’s downturn.
STUDENT LOANS
Larry Moeder, director of admissions and student financial assistance, said students could be more dependant on financial aid in the future if the economy continues to struggle.
He said if prices are increasing, students and families might rely more on assistance.
“Seventy percent of K-State students receive some type of assistance,” he said. “That’s $175 million a year at K-State. I see that going up some.”
Moeder said he thought the number of loans taken would increase, but that the level of money borrowed might not increase as rapidly.
Since interest is determined by how much money is owed, Moeder said, many students don’t borrow the maximum amount allowable.
This trend could continue, he said. Eric Higgins, head of the finance department in the College of Business Administration, said students could expect the accessibility to loans to shrink somewhat.
He said the credit crisis caused banks to become more conservative and risk averse with their borrowing practices.
“They are going to see that student loan availability is going to be a little harder to get,” Higgins said of students. “Not as many unsubsidized loans will be made.”
Higgins stressed, however, that this practice would not have an effect on subsidized loans, the interest of which is paid by the federal government. He said it was unclear if the government will try to fill the gap left by banks by offering more subsidized loans.
Moeder said Congress increased the eligibility of subsidized loans by $2,000 in 2007.
FINDING EMPLOYMENT
Besides loans and banks, Higgins said students will find that the job market could be unusually harsh.
Businesses reduce hiring during a recession, and students could be waiting years before the economy and job market return to a stable state.
He compared the current economy with that of the 1970s, which was also fueled by high unemployment, Middle East instability and political anxiety.
“It could take two to five years to work this whole mess out,” he said of the current economy. “In the ‘70s, we had almost a decade of a flat market and a flat economy.”
THE BAILOUT
Higgins warned that the rescue plan passed by Congress was not a fix-all.
“It’s not a silver bullet that’s going to cure everything,” he said. “It’s going to take longer than that.”
Diane Swanson, professor of management, said the government’s decision to take stake in some U.S. banks is not clear on whether American taxpayers will be shareholders in those banks, since it was tax dollars given away in the rescue plan.
“My understanding is that the government now has a non-voting stake in some troubled financial institutions,” she said. “The ‘non-voting’ part suggests that public interests will not be represented directly. I have not heard of any plan to send taxpayers dividend checks from these institutions in the future. All this suggests that the public may not be better represented in the future.”
Higgins said the government’s stake will be similar to preferred stock, which entitles holders to a 5-percent dividend but does not give the stockholder a voting right.
If the banks recover and turn a profit, Higgins said he didn’t know where the dividend would go, but he had a suggestion.
“Hopefully it will be used to offset some of the cost of this thing,” he said. “There not a lot of indication at this time.”
He said the area of the economy that will most affect students is the price of the rescue plan.
“You guys are the ones seeing the bills,” he said. “That’s got a lot of long-term implications and a lot of bills to pay for your generation.”
Swanson said a larger cynicism toward government and business will be seen in Americans and future generations.
“I believe that the public is cynical about the ability of the government sector to respond appropriately, as well as the ability of businesses to police itself in absence of intelligent public policy,” Swanson said. “This cynicism is grounded in reality. Both sectors have demonstrated a remarkable lack of social responsibility.”
She said borrowing habits and practices by consumers will change in the future, in response to the current crisis.
“I certainly hope the public will be more discriminating in this regard,” she said. “After all, many have lost their life savings and retirement funds.”
Moeder said other than students and families, K-State will see a difference on campus because of the economy.
“I think we’ll see families paying more attention to cost,” he said. “I don’t think we’ll see a change in enrollment. [K-State’s] still more affordable than other universities.”