For the Class of 2020, the Coronavirus Poses Amplified Economic Strain
By Hugh T. Ferguson, NASFAA Staff Reporter
As college graduates approach what was meant to be their commencement season, they instead find themselves facing an abruptly bleak job market, setting up significant barriers to their economic well-being.
With unemployment numbers spiking, and companies freezing and rescinding job postings, the class of 2020 finds themselves burdened with the additional pressure of looming student loan debt and potentially fewer opportunities to meet those repayments.
Rep. Josh Harder (D-Calif.) graduated in 2008 at the start of the Great Recession and says that more than 10 years later, his peers and classmates have not recovered financially.
“One of my friends had to go back as a janitor at the same school he graduated from for a couple years, because he couldn't find a good opportunity for employment in the midst of an enormous recession. I think that's the case for a lot of students [who graduated] in 2008,” Harder said. “I think it's going to be even more of the case for students that are graduating in 2020.”
As Capitol Hill continues its negotiations over another spending package to combat the financial toll of COVID-19, Harder has unveiled his own measure, H.R. 6502 (116), that would allow student loan borrowers graduating in 2020 to defer their student loan repayments for up to three years. During that deferment period, interest rates on the loans would not be waived.
The bill is a companion to a Senate bill, S. 3556 (116), originally introduced by Sen. Mitt Romney (R-Utah). Harder said he hopes that his measure, having two Republican cosponsors in the House, will enable it to be a small bipartisan step that Congress can agree to.
Harder says that with many negotiations still ongoing, he believes more can be done for student loan borrowers. He said he considers the student loan repayment process to be “horribly broken” and thinks that over time Congress should be more ambitious in overhauling the system.
“But I think this is a critical first step,” Harder said. “Anyone who is graduating this year should be given more relief than students who graduated five years ago, because the students graduating this year are going to have a much tougher time.”
Elise Gould, senior economist at the Economic Policy Institute (EPI), says that while college graduates of recent years were seeing an improvement in the job market, their economic outlook had never fully recovered to a level that previous generations enjoyed.
“That benchmark of getting back to 2007 was actually a low bar for where we wanted to get back to,” Gould said. “I think we're still a ways away from trying to get back to the kind of economy we had in 2000, and that should be the target in this recovery.”
Further compounding the current grim economic forecast is the magnitude in which the economy has been reshaped by the viral outbreak. Unlike in 2008, many businesses have now been forced to unexpectedly close and halt operations.
“Presumably, when we get on the other side of this, a lot of those places will open. The ones that did not go out of business will probably reopen relatively quickly,” Gould said.
However, Gould said she believes there will be many similar trends to the 2008 financial crisis, such as elevated unemployment rates and an increase in underemployment, especially as businesses begin to reopen their doors.
“[Recent graduates] are going to be scrambling to get jobs so they can start paying off their student loans. They may not wait for a job that gets them on the career trajectory that they hoped for,” Gould said. “Or they may be in a little bit of a waiting pattern to get their foothold in their career while they work in other jobs.”
Student loan deferment — such as what is proposed in Harder and Romney’s bills — is helpful, according to Gould. But she said it is “premature” to set an end date on the deferment period, since it is unclear as to how long this economic downturn will last.
“We certainly don't want to set up those new grads to fail and default on those loans. That doesn't help anybody,” Gould said. “So we want to provide an adequate safety net to make sure that those new grads not only can try to get started on their careers, but can get on track to be able to pay back those loans.”
Meanwhile, Gould said there will need to be a greater federal response in shoring up state budgets, as many are already bracing for cuts.
“Because of the loss of sales tax and income tax revenue, and because of their mandate to balance their budgets, [states] are going to rely even more on federal money to try to keep them from slashing their budgets,” Gould said. “That will obviously impact things like public education.”
Cuts to state spending on public higher education coupled with a widespread economic decline could spell trouble for low-income students.
Margaret Cahalan, director of the Pell Institute for the Study of Opportunity in Higher Education, is not just concerned for the class of 2020 — she said she’s also concerned about the economic plight for low-income and first generation students who have graduated and have loans, as well as those just getting started in their higher education.
“Low income students, in general, face more challenges, and now they're facing [even] more challenges, in terms of family support, family resources, which generally are also much lower,” Cahalan said. “I think that context is something that we just need to consider in terms of the federal response.”
In developing a federal response, Cahalan says policymakers need to be aware that enrollment in higher education tends to increase whenever there is an economic downturn, and enact policies that can benefit these students.
Specifically, she said more grant aid — not loan support — for pursuing additional schooling is needed.
While Cahalan said student loan deferment for recent graduates is preferable than no deferment, she still considers it to be a “double edged sword,” because students will still have the loans looming down the road.
“Many high-income students have no debt, and so I feel like deferment is what it is. It's a deferment, and it will still impact the students throughout their whole careers,” Cahalan said. “I would be more in favor of something where there is basically a loan forgiveness plan.”
Maureen Hoyler, president of the Council for Opportunity in Education (COE) also said she considers deferment an important first step that she would support, but wants aid that will enable borrowers to make investments in their lives, and not have to put off buying homes, or investing in their own children’s education.
Hoyler said she is also greatly concerned that COVID-19 will reverse the decades-long progress made in providing access to higher education, and that the most recent graduates will need more targeted economic assistance from the federal government in getting on their feet.
“The recent college graduates, the graduates who graduated in 2020 and 2019, certainly need to be looked at separately,” Hoyler said. “And everybody who was a Pell [Grant] recipient who was in loan repayment, that's a group that needs to be looked at.”
Publication Date: 4/21/2020
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