By Stephen Zaremba
Today, we’re joined with David Kafafian on the second episode of the Stride Funding Podcast. David runs Business Development & Operations at Stride Funding. As an early entrant to the ISA space, he initially worked with universities exploring institutional ISA offerings back in 2016. He has worked in finance and consulting at JPMorgan and IBM, respectively, and is a graduate of Harvard Law School and Lafayette College.
In this episode, we take a deep dive into the COVID economy, reference similar aspects of the past 2008 recession, and discuss what college students should do to prepare for the future.
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David gives an overview of the current economic conditions and how college students have a large stake in the changing job market.
“Students are always going to be potentially more adversely affected by macro shocks like these. They’re new to the workforce, they don’t have experience and necessarily as deep of a network to rely on. So, there are a lot of things we should and can be doing for students to ensure they do get good outcomes and, if they are a May 2020 graduate, that they can be employed in July or August just like they would expect to be if COVID wasn’t going on.” - David Kafafian
What happened to college students during the past recession?
As the job market declined and universities raised tuition during the past recession, many college students had to make difficult decisions. David discusses how college students responded and the areas of study that were less cyclically affected during this time.
“We did see that students who were in specific segments, specifically around healthcare and STEM, had better outcomes and were able to find jobs. Students in healthcare never experienced more than 5.5% unemployment when the economy was at 10.0% unemployment…[and] students generally recognizing that their career prospects at that time weren’t that great, went back to graduate school. They went back to school at 10%-11% increase year over year relative to what you would normally have seen.” - David Kafafian
Will these trends continue?
David mentions the relevant characteristics of the past recession that are already showing up today. Similar to what happened between 2008 and 2012, universities will again have to adapt to a changing economy. Unlike what colleges have done previously, they must now find ways to deliver courses to students remotely to avoid the spread of COVID-19, while also managing for financial constraints of students, families, and the universities themselves.
“Universities have been on a trend for the last ten years of rising tuition, students taking out more and more debt to fund college, and people becoming a little bit wary of whether the education they were pursuing objectively related to their ability to find a job. This moment only exacerbates that...Universities are definitely in a crunch to figure out how to deliver a valuable...education that gives students access to the workforce, how to do it affordably, and how to do it in students’ homes, if in fact students aren’t returning to campus in the Fall.” - David Kafafian
How should college students respond?
For college and grad students, understanding the best course of action as soon as possible will be crucial, not only for saving money in the short-term, but also for having the best possible job opportunities in the future. David shares his best advice for students on how they can prepare for this.
“Think about where you want to do in the long-term, back into what you can feasibly afford to do in the short-term, and then do your best to figure out ways to ensure that you maintain your optionality.” - David Kafafian
The upsides of an ISA
As education funding options are becoming more in demand lately, David shares his thoughts on how Income Share Agreements (ISAs) add a level of support, especially during times like these.
“What we’ve found is that many students like that an ISA in many respects combines some of the features of taking a lending product with insurance. In Stride’s case, if you don’t make the equivalent of $40,000/year, then you pay nothing during that period. The downside protections and flexible features do make ISAs really compelling for students at a moment where they’re understandably nervous.” - David Kafafian