OPINION: A recession could ruin students’ lives

A year ago, I wrote a column calling for the independence of student loan interest rates from other interest rates. At the end of the column, I made a small point that if the economy took a downturn in the next few years, students at NC State could be in an awful position, one similar to the graduating class of the 2008 Great Recession.

I mentioned it as a matter of common sense; recessions happen. But more recently, a recession seems to be less of a hypothetical and more of an inevitable. Economic indicators and political uncertainty seem to be pointing to the conclusion that a recession is on the horizon. If true, it’ll have no small impact on the lives of Americans, and more to the point, on the lives of students. Student loans, educational opportunities and job opportunities could dry up if the conditions are right, or wrong, rather, within the next few years.

First, and very importantly, these indicators don’t really predict the future, if anyone could do that with accuracy, they’d be incredibly rich. No, indicators aren’t foolproof, but certain indicators, like an inverted yield curve, have a pretty impressive track record. The yield curve plots the interest rates of treasury bonds against their maturity, and an inverted yield curve means a short-term bond pays out more than a long-term one. In English, that means that when it inverts, like it has recently, investors are a lot less confident in the health of the market.

This lack of confidence can be a self-fulfilling prophecy, since to an extent the economy depends on confidence. That may be part of the reason that the yield curve is regarded so highly, and that since its inception by a Duke professor in 1986, it’s successfully predicted every recession.

There are other recession warning signs as well. For one, the Federal Reserve and Donald Trump have been having numerous disagreements on raising and lowering the federal interest rates. This included one specific instance when after a speech by Federal Reserve Chair Jerome Powell, Trump tweeted criticism of Powell and the market dropped 600 points. Trump’s fight with the Fed and his costly trade war with China could single-handedly be marching us closer to a recession.

But what does that all mean for students? Not much that’s good. Let’s start with student loans. Interest rates are likely to go down in a recession, but many students at NC State have already taken out loans with rates that are higher than recession rates. For many students who will be graduating soon, these high-expense loans could be a larger dark cloud than usual for students. Long story short: more crushing debt.

This is compounded by another factor: Students who graduate in an economic downturn are going to struggle to find a job for their degrees compared to those graduating in a good economy. All it takes is one look at 2009 graduates who couldn’t find a job to realize that graduating in a recession can put an alum back years. So that means no job and more debt for graduating students.

Current undergraduates aren’t off the hook either. A recession can put a strain on university budgets, and that can take many forms on campus. For one, budget cuts need to happen somewhere, meaning opportunities for student work, student aid and other programs might not make the cut. The inverse scenario is also harmful; colleges may have to raise tuition or fees to account for the strain, putting a lot of stress on the wallets of students.

All this sure seems grim, and it very well could be, but it’s important to realize that the future isn’t certain, and that anything could happen. In fact, the yield curve and other traditional indicators have been criticized recently for a variety of reasons. Having said that, it’s even more important for students to realize the exact position we are in. The fact is that we are vulnerable to a costly recession, and not being aware of that is dangerous. We may not have it perfect right now, but it could get a lot worse soon.