Economy affects students

“Monday the Dow Jones had a record-breaking day dropping 778 points. According to Dr. Douglas Kahl, professor of finance and international business at the University of Akron, this is not the biggest drop in history. Point wise it’s the largest drop in history, Kahl said.”

Monday the Dow Jones had a record-breaking day dropping 778 points.

According to Dr. Douglas Kahl, professor of finance and international business at the University of Akron, this is not the biggest drop in history.

Point wise it’s the largest drop in history, Kahl said. It’s far less than in terms of percentage wise.

The largest percentage drop was in Oct 19, 1987 when the market dropped 20 percent. The recent drop was less than half of that in terms of percentage.

While most people know of the Dow Jones and the NASDAQ, they are not necessarily the best indicators of the economy’s strength.

According to Kahl, to get a better understanding of the market situation people should look at other markets such as the S&P 500.

Better indices to look at would be the S&P 500, he continued. The 500 largest companies in the country. Those would be the companies that big mutual funds would invest in.

While they were all down on Monday, by Tuesday they were up by almost 500 points.

The stock market goes up and down, Kahl reiterated. The stock market is not a good thing to look at in respect to the problem we’re having right now.

Kahl admitted that he was up bright and early Tuesday morning buying stock because the prices plummeted.

The problem isn’t the stock market, he said. The thing that is causing the problem is the availability of credit.

A key thing Kahl brought up was the TED Spread, it stands for Treasury Euro Dollar. It is low-risk and a short term way to invest. It is a good indicator of the world’s confidence in the market. The higher the percentage of the TED spread, the less willing they are to take a risk.

People are far less willing to take financial risk right now than they were a couple of years ago, Kahl said.

So while students may not technically have to worry about the stock market, they will feel the effects.

In an article in Wednesday’s Plain Dealer, a Case Western Reserve Freshman told the newspaper he returned his student loan to the bank because of its high interest rate.

This is something that Kahl said will be increasingly common.

It’s not that the students have become any bigger a default risk than two years ago, he said. The people are just far less willing to take risks.

It is because of fear that interest rates on student loans, or any other loans, will rise.

All of this will make student loans more difficult to receive.

University of Akron students will be feeling the squeeze in student loans because most rely on loans to pay for higher education.

According to John Case, Vice President for Finance and Administration, the stock market does not play a large part in the university.

He says the university funds are split into endowment and unrestricted gifts.

But even Case said he sees the recession affecting student loans.

Banks are folding, he said. It may affect the giving out of students loans. Like Key Bank is getting out of the student loan business.

As long as this credit crunch is around it’s going to impact the students, Kahl said. The same pressures make it more difficult for those hoping to buy a house. Potential home buyers will most likely need to have stellar credit and put 2 percent down, even then they face high payments.

Though buying a house may be too far into the future for students to imagine, they will feel the negative effects on their credit cards. First credit card users should be prepared to see higher interest rates and a lower credit limit, Kahl advised.

The credit that most are accustomed to seeing will still be there, but it will just be much harder to get.

This country runs on credit, he said.

The strength of the economy directly impacts the strength of the job market. As Kahl stated, even McDonald’s feels the crunch.

According to him the popular fast food restaurant was planning on coming out with numerous coffee shop to compete with Starbucks. Those plans have been put on hold. Each franchise must be able to get the money they need to support the new java joints at a reasonable interest rate. A feat which currently seems impossible.

Here is what this means: students who work at places like McDonald’s may not have a job for a year or at all.

It is the ability to obtain credit and jobs that Kahl said he sees affecting students more than the stock market.

All of this economic turmoil will undoubtedly lead to a recession.

If you’re graduating in the spring, jobs are going to be hard to find, Kahl advised. There will be a lot of people going to graduate school instead of getting a job.

If you can’t get a job, go to graduate school, he said. I graduated from my undergraduate degree during a recession and the only job I could find was working for the unemployment services.

He said that there would probably be a recession and jobs will be hard to find come spring. However, a year from this spring he believes things will look better.

He did offer a bit of hope that certain fields will not suffer nearly as much.

If you’re graduating with a pharmacy degree, he said. There are things like that that aren’t particularly affected.

Case added, Sometimes during a recession we have more students, Case said. I think we’re still waiting. I think it will be more at the beginning of next semester or next year.