Bringing the debt crisis into scope

Life in the United States will only get worse if something isn't done to taper the national deficit—or will it?

The current state of domestic and global economics remains a confusing issue complicated by competing perspectives and the upcoming U.S. presidential race in 2012. For college students falling outside the realm of finance and economic departments, understanding the present and future ramifications of the debt crisis can be challenging.

"I don't know much about it, to be honest. I don't think it's fair or good that we're like a trillion dollars in debt, though," said Cristina Torres, a nursing student at CCD.

Though opinions on what caused the debt crisis vary, it is certain that a problem exists. The United States, among other countries, currently owes more money to its lenders than it has available. According to the U.S. Treasury Department, the U.S. currently holds $14.6 trillion in outstanding public debt—a number that surpasses the country's current total gross domestic product for 2011.

Consequently, Standard & Poor's—one of the three major credit rating agencies—downgraded the U.S.' credit designation from AAA to AA+ on Aug. 5, signaling that the U.S.' ability to pay back its obligations has slipped. While ratings from the other agencies, Fitch Group and Moody's, remain steady at AAA rank and initial repercussions of the announcement were seemingly short-lived, some experts see the S&P;'s proclamation as a red flag.

"Consider S&P;'s downgrade to AA+ as a warning shot across the bough. It served to help raise the profile of an issue that is not going to go away and arguably, should be dealt with sooner rather than later," said Ron New, president of the Denver Association of Business Economists.

New said that the change in credit rating was comparable to suddenly having a lower credit score, the consequence of which means that lenders are less likely to loan funds to someone of a higher credit risk.

For students, the debt crisis is already having an effect on educational resources. Earlier this month, as part of the solution to the debt-ceiling emergency, Congress opted to end the subsidized loan program available to graduate students, wherein loans are interest-free until six months following a student's graduation.

Beginning next year, graduate students will have to pay interest on their loans during the course of their schooling. Additionally, according to the bill's text, "repayment incentives" on direct loans will also be terminated, effective July 1, 2012.

Dr. James Smith, an economics professor at CU Denver, said that it would not surprise him if similar changes to undergraduate loan terms were to "trickle down" in the near future.

In the long run, failure to decrease the budget deficit in the U.S. will ultimately affect the total financial burden that students will carry in order to complete academic studies—whether that be due to higher interest rates or decreased access to funds.

"A lot of students have to borrow to go to college and to go to university. There are repayment issues connected to that debt. Interest rates will go up in the future—that'll hurt students for sure," said Dr. Ameyo Banerjee, director of UCD's finance program. Banerjee also said that the increased costs of secondary education would only further compound the fiscal obligations that students will face.

Anyone seeking loans in the future could encounter increased interest rates that rival those in other debt-challenged nations such as Portugal and Greece if the national deficit fails to come down. According to New, the cost of a 10-year loan to the U.S. comes with a 2.7% interest rate whereas Portugal and Greece currently face rates of 10% and 15% respectively.

Grasping the entire scope of the situation is almost as difficult as deciding between the many proposed solutions to the economic troubles on both the domestic and international fronts. Some experts at UCD say that the only way to decrease the budget deficit is to grow the economy and stop bailing companies out.

"If you are just making enough money to pay the interest on your credit card, you are in deep trouble. That is where our economy is heading…the population thinks we can deficit spend and stimulus our way out of this and we can't. There is no easy way out of this," said Smith.

Banerjee stated that despite the situation, there is no need for consumers or students to panic. "I still think the U.S. has a very big, strong, and resilient economy," he said.

Still, both Banerjee and Smith agreed that jobs and the employment market should be more of a priority for students. Without steady work, costs such as living expenses, rent, and student loans cannot be paid at all.

With the national unemployment rate steady at 9.1% as of July according to the Bureau of Labor Statistics, recent graduates may have a difficult time finding firm employment within their field, so preparation is key. Students at any of the three schools on the Auraria Campus have access to a wide variety of services including resume workshops, interview coaching, and more through each of the individual career service offices. These opportunities are available at no cost to students as the services have been funded by student fees.