Friday, November 1, 2013

How National Economic Struggles Affect College Students, by William Ricioppo

The recent government shutdown and uncertain direction of the US economy could have an impact on how UW-L students plan for their future.

“The impact this recession will make on students is the increase in loan costs as interest rates rise,” says Mike Haupert, UW-L professor of economics and former economics department chair. “Loans are becoming more expensive because they’re risker− with the job market being so shaky, lenders will charge more.” Haupert notes that higher loan costs will then influence how much students borrow, causing further financial sluggishness.

This trickle-down can be felt throughout the economy. Tighter monetary policy at the federal level translates to the supply of money available through the reserve system. This affects how money is lent, borrowed, and spent.

The ongoing recession, initially triggered in 2007 by a faltering mortgage market, a collapse of the financial sector, and a weak job market that still struggles is dragging on longer than expected.

Although recent interest rate increases make borrowing for college more expensive in the long run, the availability of loans is there. Should a student seek financial aid, they’re likely to receive it. The economic downturn, while forcing rates up, has not reduced the willingness of institutions to offer loans.

One reason for this is the positive upside earnings potential college graduates have upon receiving their degree.  In lieu of increased average debt size, the unemployment rate for college grads is lower−roughly half that of the national average. Since 2007 national unemployment has been between seven and 10 percent. The unemployment rate for college graduates has historically hovered near four percent, unchanged even during times of economic instability.

Another payoff for students is the indirect relationship between level of education and length of unemployment. According to Haupert, length of unemployment for someone without a degree could stretch longer than six months, while time spent out of work for the holder of a four-year degree averages just four to six weeks.

 “There are just less entry level, blue-collar jobs out there,” says the professor. “Right now jobs available to people with a high school education aren’t paying high wages, and are generally the least desirable.”