Plunging toward rock bottom

By Paul Gully

Special Projects Editor

August 31, 2008 — it was just two days before Courtney Rix was to begin her freshman year of college and her family had just found a place to live, mere weeks before they were to be kicked out of the home she grew up in.

Due to rising mortgage costs, coupled with the fact that her father was out of a job, the Rix’s Shelby Township house became one of the more than 100,000 foreclosed in Michigan in 2008, according to, a national online foreclosure information website.

Rix, the first in her family to attend college, had been accepted to and planned on attending the Lyman Briggs College at Michigan State University. But because of her family’s financial difficulties she quickly came to terms with the fact that MSU wouldn’t be in her future.  

Instead, Rix decided that she would go to Oakland University. Rather than living in MSU’s dorms, she would be living at home — in a Rochester Hills townhouse where she shares a bedroom with her 10-year-old sister.

“I’m still kind of getting used to this new environment; I’m still not used to this whole thing,” Rix said. “It has been a really stressful period.”

Rix’s story is not unique. Most people aren’t losing their houses, but due to the current status of the credit market and the financial “crisis,” many people are losing money in investments, access to loans, and sleep and peace of mind.

But what does this mean for you, a student attending OU? And what does it mean for OU itself?

Student loans jeopardized?

Fortunately for Rix, upon enrolling at OU, she received a federal grant that covered most of her tuition. The remaining balance was covered by a scholarship.

However, for students around the country who don’t receive scholarships or qualify for grants, college may be just a little harder to attend in the coming months.

While federally funded loans will most likely not be affected by the recent credit developments, according to Ron Tracy, Ph.D, OU’s associate dean of the School of Business Administration, future loans from private lenders may be jeopardized.

Because of the current state of the credit market, banks and private lenders such as Sallie Mae and Citibank may be less willing to lend money, which could have a direct impact on both current and prospective college students.

“The big issue is future loans because the credit market right now is so tight,” Tracy said. “That’s the whole reason for this [bailout] — to go and bring liquidity and confidence back to the credit market. That can certainly affect future student loans.”

Mohan Tanniru, dean of the SBA, agreed with his colleague, saying that there are potentially significant ramifications for students.

“Most of our education system today doesn’t depend on paying through cash. Most of the time people don’t have that kind of money, so that means they have to take a loan,” Tanniru said. “If they have trouble getting a loan, or it comes with a high interest rate … it may mean that a potential student might have to delay their education, or have to choose a cheaper alternative.”

However, Tracy believes that if the student loan industry was adversely affected in the near future, the federal government would intervene and use “more of its borrowing power against it to guarantee student loans.”

According to Cindy Hermsen, Oakland’s director of financial aid, OU students have not experienced any negative affects with regard to private lenders. Hermsen said that the financial aid office has always cautioned students about taking loans from private lenders, and that only a small percent of enrolled students have them.

While a large number of students rely on student loans, many depend on their parents for their education funding. But the economic crisis is whittling away jobs and savings.

In the case that a student’s family experiences “a significant change in financial circumstances which is beyond their control,” Hermsen recommends filling out an unusual circumstances form, which are available in OU’s financial aid website.

University fund raising

The current state of the credit market will almost certainly have an effect on the university itself.

OU relies on fund raising and endowments — funds or property donated to an institution to be invested — for a number of purposes, including building and facility renovations, student scholarships and faculty positions.

According to John Beaghan, OU’s vice president of finance and administration, while university endowments have taken a bit of a hit this year, it had little impact on OU’s current operations.

“We’ve lost some money in endowment investments that were invested in equity,” Beaghan said. “But these are long-term investments that will turn around. In the end, they will out earn other types of investments.”

Tracy echoed Beaghan’s sentiments. “There’s little doubt in my mind that endowments across the country have gone down. But I don’t foresee any lasting affects because, in the long term, the stock market has been a very good place to put it,” he said. “What’s always the problem is if you have to take your money out during this downswing — not if you can wait it out.”

And ultimately, as it is with most university endowments, safeguards are put into place to help guard against any long-term, negative effects that an economic downturn may have.

While long-term investments may be relatively safe, continuing to bring in money may prove difficult in such an economic climate.

“A lot of donors suddenly saw a lot of their money evaporate … which [may cause them] to delay their decision to contribute to a charitable cause, like endowments, student scholarships and things of that nature,” Tanniru said.

However, according to OU’s Vice President of University Relations Susan Davies Goepp, who is also in charge of the university’s fund raising, the state of the economy has had little impact on the university’s ability to raise funds. Goepp also said that she doesn’t foresee and significant drops either.

“We’ve looked at the history of economic downturns and have learned that there has still been growth in fundraising in the United States, especially in higher education,” Goepp said. “People want to invest in the future and they know that even though it’s an economic downturn, we need an educated public.”


While there is no precise way to predict the outcome of the country’s current financial state — how long it will last, when things may begin to turn around — Tracy and Tanniru, along with the majority of economists, agree that it may take time.

Tracy expects the country to fall into a year-long recession, beginning sometime this quarter, which, Tracy says, will directly affect the job market for everyone.

Though Tanniru is a bit more optimistic on the __ time table — he hopes to see an upturn by mid-2009 — he also believes that the biggest affect on students will be their ability to find a job.

 “Well, obviously, the biggest problem for [students] is employment. And until the [economic] and employment situation improves, there’s going to be some uncertainty.”

Just last month alone, the government reported that 159,000 jobs were lost.

There are also student concerns about whether taxpayers will foot the bill for the $700 billion bailout package.

According to Tracy, there are several ways the government could handle the bailout’s steep price tag. It could print more money, could raise taxes, or borrow it — which Tracy says is the likely solution.

There is, however, a small chance that, if successful, the bailout could lead to a profit for the govern

ment, in which case, taxpayers would not be held responsible for ___.

“This is a little different from what the government usually spends money on, because here, they’re spending money on an asset,” said Tracy. “They aren’t buying a bridge or

[constructing] a building, they’re buying something that can be sold. So there is a decent chance that this won’t cost very much. It could actually make money. … There is a risk, but it shouldn’t be a horrible risk.”

The bigger concern for Tracy is whether or not the government’s bailout plan will remedy the credit crisis.

“I’m not 100 percent sure it will fix the problem,” he said. “And that’s the bigger problem — to do it and then find out six months from now that it wasn’t sufficient and doesn’t fix things.”

However, Tracy does concede that action was needed.

“This is a major issue, there’s no question about it. Without addressing it, this is the kind of thing that can send the economy into a tailspin,” Tracy said, being conscious not to use the term “depression.”

It seems at a time such as this, the only thing anyone is sure of is uncertainty.