Spring Break
Recession raises concerns over availability of student loans
Melody Perry
Issue date: 5/1/08 Section: Campus News
Students' ability to take out loans may be jeopardy due to the current US economic credit crunch.
A credit crunch is usually considered to be an extension of recession. It is an economic condition where it is difficult for companies to borrow, as banks and investors become wary of lending, their fear of bankruptcies or defaults driving them. This results in higher rates, causing the price of debt to rise. During a credit crunch some borrowers cannot obtain loans at all.
According to Mohamed El-Erian, co-chief executive and investment officer of Pimco, a credit crunch is marked by an economic recession and a "declining availability of credit, a negative wealth effect triggered by declining house values and a lower standard of living as the result of higher energy and food prices and a depreciating dollar. Job losses will be accentuated by the pressures on consumers, leading to income decline and a further loss of confidence."
In a series of recent live appearances on CNBC's Squawk Box, Warren Buffett, a very successful businessman stated that, "We are in a recession, unless you want to stick strictly to the technical definition, which I really don't think has much meaning to the fellow who has lost his job or is facing a money-market fund that isn't paying out, or whatever it might be."
Or perhaps those seeking student loans? He also said, "This not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think… this will not be short and shallow."
Pauline Vu, a staff writer for Stateline.org wrote in an article, "state officials are worried about what will happen this summer when a surge of students begins applying for fall semester money… some experts say that escalating loan costs could discourage some students from applying at all."
The number of banks, state agencies and private lenders closing down their student loan programs is building. Students could find new lenders, however they run the risk of higher interest rates and fewer benefits with the credit crunch upon us.
A credit crunch is usually considered to be an extension of recession. It is an economic condition where it is difficult for companies to borrow, as banks and investors become wary of lending, their fear of bankruptcies or defaults driving them. This results in higher rates, causing the price of debt to rise. During a credit crunch some borrowers cannot obtain loans at all.
According to Mohamed El-Erian, co-chief executive and investment officer of Pimco, a credit crunch is marked by an economic recession and a "declining availability of credit, a negative wealth effect triggered by declining house values and a lower standard of living as the result of higher energy and food prices and a depreciating dollar. Job losses will be accentuated by the pressures on consumers, leading to income decline and a further loss of confidence."
In a series of recent live appearances on CNBC's Squawk Box, Warren Buffett, a very successful businessman stated that, "We are in a recession, unless you want to stick strictly to the technical definition, which I really don't think has much meaning to the fellow who has lost his job or is facing a money-market fund that isn't paying out, or whatever it might be."
Or perhaps those seeking student loans? He also said, "This not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think… this will not be short and shallow."
Pauline Vu, a staff writer for Stateline.org wrote in an article, "state officials are worried about what will happen this summer when a surge of students begins applying for fall semester money… some experts say that escalating loan costs could discourage some students from applying at all."
The number of banks, state agencies and private lenders closing down their student loan programs is building. Students could find new lenders, however they run the risk of higher interest rates and fewer benefits with the credit crunch upon us.
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