Students Feeling Pinch of Economic Crisis

October 31, 2008  

By Brenna Rushing
brushing@smu.edu

When Melissa Klare thinks about her future career, she worries. The SMU senior, who majors in international studies, knows all about the recent financial bailout and what it means for her. She knows that in less than a year she will have a tougher time finding a job because employers are suffering and many are not hiring.

“It scares me to go into the economy as a young professional,” she said.

Klare is facing the same problems as college students across the nation. The sinking economy means there will be fewer job opportunities for graduates. According to the Department of Labor, the unemployment rate for September stood at 6.1 percent. And students still in school may face a tougher challenge securing student loans, say loan officials.

Banks are restricting student loans due to the fallout from the failing housing market. The Chronicle of Higher Education reported recently that as a part of a $700 billion federal bailout of financial institutions across the nation, Treasury Secretary Henry Paulson Jr. intends to use some of the funds to purchase the assets of student-loan companies holding bad debt.

Most economists say the crisis started with bad mortgage-related securities held by financial institutions around the world. In September, Lehman Brothers, one of the oldest financial services company in the U.S., went bankrupt. The federal government then bailed out mortgage giants Fannie Mae and Freddie Mac and the insurance company AIG. A few days later, lawmakers agreed to an additional $700 billion to purchase bad mortgage securities from other failing lending institutions.

A Historic Crisis

Al Niemi, Dean of the Cox School of Business, says that students should be concerned. He has been studying how the economy works for almost 40 years, 12 of those at SMU. He says one of the factors that led to the current crisis was over-lending by banks. They loaned too much money to homeowners who couldn’t afford it, and now those debts are due.

“I’ve never seen anything like this in 40 years,” he said.

The financial crisis is spreading worldwide. Recently, the Icelandic government seized their biggest banks and Russia’s stocks fell 20 percent. England, Paris, and Brazil have also reported significant losses in their markets.

Niemi says that the current recession should last 18 to 24 months.

“This is longer than normal, but without the recession, there will be a depression,” he said.

Dallas Could Be Safe

But Niemi says Dallas could escape most of the trouble. The state of the economy will affect states and cities in different ways, depending on their size and the strength of their economies.

“There’ll be no recession in Dallas. It’s the fastest growing city in America,” he said.

DFW was the fastest growing city from 2006 to 2007. The population increased by 162,250, according to a new U.S. Census Bureau report.

Ashok Mani is another student concerned about getting a job once he graduates. He is a senior majoring in financing and economics. He says that he’s interviewed with three companies in the past few months and none of them have followed through with job offers. Bank of America was one of the companies; it pulled out after the interview.

“I think the election is making it worse. Everyone thinks they need to say their opinion,” Mani said.

The bailout plan will still be unfolding when a new president steps into office. Niemi says more regulation of the proposal will be needed, but the president won’t have the freedom to reform or change the bailout. In other words, the plans being set in place now will need time to play out.

Cal Jillson, a political science professor at SMU, believes that the bailout is the country’s best option. Dr. Jillson, an expert on American politics, has written four books and two textbooks on the subject. He says that if the bailout wasn’t put into place, the country would go into a depression.

“The $700 billion being paid through the bailout plan is less than what we would owe if we had a recession,” he said.

Jillson says his main concern is his retirement fund. Most retirement funds own stocks, and since the stock market is suffering, workers close to retiring are fearful.

“Money is lost because the market is down 30 percent from last October. But the market normally evens out within five to ten years, so if you have that long before retirement you’re safe,” he says.

Families of Students are Concerned

Kerri Dezell, a sophomore at SMU, says she is not paying for school with loans, so her future is a little brighter than most students. But her family will be directly affected because her dad works for Bank of America. She has mixed feelings about the plan.

“I agree with it because I hope it’ll help the lower classes. But at the same time, it’s helping the people that knowingly loaned too much money out,” she says.

Parents of students also have much to worry about. Not only are their finances at risk, their childrens’ futures are in danger too.

Mary Shaw, mother of a TCU senior, has some worries about her safety net. She is able to pay for her daughter’s tuition out of pocket in a payment plan. But she has always kept the option of loans open in case she can’t afford the total expense. For a complete school year she pays $26,900.

“Looking at options and how this bailout has made getting loans more difficult for parents is worrisome. It has created anxiety for me and my family because we no longer have a back-up plan,” said Shaw, who lives in College Station.

Across the board, Americans are concerned about their current and future economic state. Klare, the international studies major, said she is fortunate because, as a senior, she won’t have to worry any more about finding financial aid. But she worries that the bailout may just be a temporary solution.

“We don’t have a better plan,” she said. “It won’t fix the problem; it’s a quick fix. It could get worse.”

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