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What does the bailout mean for us?
by: Sam Henry
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Our political leaders scrambled to pass a gigantic $700 billion bailout with intentions of stabilizing the U.S. economy. This massive piece of legislation will undoubtedly have massive effects on balance sheets of financial institutions and the budgets of everyday American families, but what does it mean for college students?
THE BAD
To begin, let's get the bad effects out of the way. Obviously, this bailout will increase the national debt. In fact, this legislation increased the debt limit to $11.375 trillion. When you borrow money you eventually have to pay it back. The government pays its debts back by taking taxes out of our pockets. More debts could lead to more taxes. Most of us will be graduating in a few years and welcoming us into the real world will be none other than a hefty tax rate.
Naturally, spending this much of the federal budget for the bailout means that there will be less funding for other government initiatives. Cut-backs will be made somewhere. Both presidential candidates have acknowledged that. Barack Obama has scaled back his plans for universal health care, investing in alternative energy resources, and building infrastructure while John McCain intends to eliminate earmarks and cut flexible spending. If cuts are made in these areas what's stopping them from cutting funding for education. It's a grim possibility.
THE GOOD
Many will agree that while the bailout plan as it emerged from Congress may have been far from perfect but, legislative inaction would have been much much worse. Without some type of significant bailout being passed, more U.S. financial institutions would have failed leaving fewer and fewer lenders for students to choose from to borrow money for school. Less competition for the lenders makes it easier for them to charge higher interest rates and in the absence of this bailout, rates would have gone sky-high.
Having the government step in and buy up some of the bad debt from their books gives lenders breathing room to issue new loans. Hopefully, this will increase the flow of credit making student loans more accessible. Unless you're making it with scholarships, federal loans, and/or your own savings, this bailout will indirectly help you find money for school.
The greatest beneficiaries of the bailout plan are perhaps small businesses which depend on credit to fund and expand their operations and pay their employees. When credit tightens these employers have to make adjustments or risk bankruptcy. Adjustments as in charging their customers more or cutting jobs. These are the employers that we as students are counting on to have open positions for us upon graduation. If they are firing, they definitely won't be hiring. For our sake and the sake of our economy something had to be done.
Taxpayers are footing the bill for this bailout but our elected officials have not simply thrown away our tax dollars. (At least not in this case.) They have made an investment in our failing financial system in an effort to turn it around. Whether you agree or disagree with the bailout, know that we would have paid for it either way. As borrowers today and contributers to the economy tomorrow, college students will feel the effects bailout, both positive and negative.
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