2008 Woodie Awards
Market stability impacts college funding
The economy could potentially cause rates to flair and make loans costly for students
Jonathon Bowers
Issue date:
2/13/08
Section:
News
Here at Olympic College, as well as across the country, the majority of college students pay for their college education with student loans. With many economists saying we are in a recession, it becomes important to look at what, if any, effects a recession will have on the student loan industry.
The mechanics behind a recession are complicated, and rarely discussed outside of the economic sector. The details of the student loan industry, though more accessible, can be just as confusing to figure out. There can be no doubt however that the availability of credit from the Federal Reserve will have direct consequences on both the availability of student loans, and the interest rates the money will be loaned at.
Since 2001, a bubble in the economy has been building in the housing market due to artificially low interest rates created by the Federal Reserve.
According to Economics Professor Nelson LaPlante, after the dot-com bubble burst, the Federal Reserve lowered the prime rate (the interest rate at which banks borrow from the Fed) to near one percent to stave off a natural recession that would occur due to the bursting of the dot-com bubble.
LaPlante said the long term affects of this was the easy money from the Fed loaned to banks at such low interest rates led to low-risk speculation by the banks in the housing market.
The banks used this easy money to lend to high-risk borrowers, and put them in a house due to the direction of President George Bush. In 2002 at a Baylor University forum on economics, Bush called for the private sector "to unlock millions of dollars, to make it available for the purchase of a home."William Goldman, in his book "Secrets of the Temple," details the continued deterioration of oversight by both the Fed and Treasury Department, and how it can lead to deceptive loan practices. With the easy money and lack of oversight by either the Fed or Treasury Department, loans that would have at one time never been issued, were offered to high-risk borrowers as adjustable rate mortgages.
The mechanics behind a recession are complicated, and rarely discussed outside of the economic sector. The details of the student loan industry, though more accessible, can be just as confusing to figure out. There can be no doubt however that the availability of credit from the Federal Reserve will have direct consequences on both the availability of student loans, and the interest rates the money will be loaned at.
Since 2001, a bubble in the economy has been building in the housing market due to artificially low interest rates created by the Federal Reserve.
According to Economics Professor Nelson LaPlante, after the dot-com bubble burst, the Federal Reserve lowered the prime rate (the interest rate at which banks borrow from the Fed) to near one percent to stave off a natural recession that would occur due to the bursting of the dot-com bubble.
LaPlante said the long term affects of this was the easy money from the Fed loaned to banks at such low interest rates led to low-risk speculation by the banks in the housing market.
The banks used this easy money to lend to high-risk borrowers, and put them in a house due to the direction of President George Bush. In 2002 at a Baylor University forum on economics, Bush called for the private sector "to unlock millions of dollars, to make it available for the purchase of a home."William Goldman, in his book "Secrets of the Temple," details the continued deterioration of oversight by both the Fed and Treasury Department, and how it can lead to deceptive loan practices. With the easy money and lack of oversight by either the Fed or Treasury Department, loans that would have at one time never been issued, were offered to high-risk borrowers as adjustable rate mortgages.
Be the first to comment on this story