So, what is the IYC (inverted yield curve). In short it is a graph that shows the relationship between short-term and long-term bond yields, where long-term yields fall below short-term yields. Financial market participants use this chart as a prediction of possible economic recession in the future.
On August 14, 2019, the IYC exactly showed that, and caused the DOW to down-nosed more than 800 points on average, which is around 3.05%. If recession is going to occur in the long-run that will bring chain reactions such as a weaker job market which then will affect the ability of student loan borrowers to repay their loan. Meaning? More people will take the forbearance option. This will push even further the default rate.
In short, if the prediction is correct (which has been in the past), here is going to happen in the US higher ed:
- Losing jobs, mean delayed loan repayment.
- More people may enroll to update their skill set. So enrollment in certain areas or programs may go up.
- Demand for student loans may go up, but higher ed institutions may need to rely more on their own resources due to a lower state budget which caused by lower state income tax.
- Since education can be seen as long-term investment, the interest charged rate supposed to be lower because of the IYC hypothesis. But it will not happen any time soon.