Recent financial troubles will make acquiring college loans, credit and jobs more difficult

After the collapse of Wall Street on Monday, students will face more challenges attaining student loans, finding jobs and securing credit.

Since 2001, the economy has steadily become worse, making it difficult for Americans to have any financial security.

“These financial problems are causing a reduction in credit (borrowing money), which causes a weakness in spending,” said Michael Ellis, associate professor of economics. “In general, credit is going to be harder to get.”

Monday, the financial industry saw one of the most troubling days in the history of the United States. Lehman Brothers, a large investment bank, filed for bankruptcy.

Other investment companies, such as Bear Stearns, Fannie Mae and Freddie Mac, were in trouble earlier this year. The government was forced to take over and help these companies in order to keep the economy rolling.

The government did not take over or help Lehman Brothers on Monday.

“If the government helps financial institutions like this, the government can create a situation called ‘moral hazard,'” Ellis said.

Ellis said moral hazard happens when financial companies make risky investments. Usually, from these risky investments, the companies can make high returns; however, they can also have huge losses. The companies then depend on the government to bail them out.

After Monday, financial companies are now aware that the government will not always help them if they practice risky behavior.

“The companies thought that they could engage in this type of behavior without exposing the firm to too many losses,” Ellis said. “This turned out to be untrue.”

The Federal Reserve pushed $70 billion into the nation’s financial system to calm credit stresses yesterday.

Because of Monday’s financial problems, students can expect to have an even harder time obtaining student loans and securing credit.

“Some of the largest extenders of credits have pulled in, which makes it difficult for students to secure loans,” said Ron Stolle, assistant professor of finance.

According to cnnmoney.com, students can still get loans, but they will have a limited choice of lenders and see higher rates and fees. These problems stem directly from the credit crisis.

Mack Valencia, sophomore business management major, said without as much loan money available, students will have to find money elsewhere.

“As the student, trying to go to school, you aren’t able to get as much in loans – you have to go out and get a job,” he said.

Mark Evans, director of student financial aid, said the majority of Kent State students don’t need to worry about loan security.

“In one sense, there is a lot of uncertainty out there,” he said. “There are lenders that are leaving the student loan business. Kent State is positioned extremely well that our Federal Loan programs are guaranteed and are through the federal government and not a private lender.”

Stolle also said students will have a tough time accessing credit and getting jobs, especially seniors graduating in December.

“Hiring lags behind the economy because employers want to be sure things are, in fact, growing, so they shy away from new hires,” Stolle said. “But that shouldn’t dissuade students who are well-prepared, have good grades and have had internships. There will still be jobs, it’ll just be more competitive.”

Because of the declining economy, Stolle said students need to understand the issues and cast a knowledgeable vote in the presidential election this year.

“Whoever gets elected, I hope they have a plan,” Valencia said. “We’ll see how things come into play in November.”

Even though Monday’s financial fall-out seems alarming, Ellis said it had to happen.

“This is scary, but it’s less so when you realize it’s a part of the adjustment process,” he said.

Contact student finance reporter Kristina Deckert at [email protected].

Contact College of Business reporter Jenn Yokley at [email protected].