Government shutdown: How it will affect student jobs, home loans, unemployment data, and other economic activity.

Commentary about business and finance.
April 8 2011 3:37 PM

The Shutdown Economy

If the government shuts down, can I still get a home loan? And other possible ways the shutdown could affect the economy.


The overall economic impact of a government shutdown, if it happens, probably will not be that bad or that broad. The cost of the last shutdown, in 1995-96, was only about $1.4 billion, according to the Office of Management and Budget, and most of that got recouped in the next quarter. But that does not mean it will be nonexistent. We all know: No national parks, yes Social Security payments, yes online tax refunds. (Also: "Park with impunity" in Washington, D.C., since the meter maids won't be at work.) But there could be a few lesser-known, secondary economic effects of a government shutdown.

Student jobs and student loans. The Department of Education says that about 4,150 employees are preparing for furloughs. Thankfully, the day-to-day impact will be invisible for most parents and kids. America's school systems work smoothly during a shutdown: States and local governments administer your local elementary or land-grant college, not the feds. The University of the District of Columbia, though, is preparing for a full-bore, turn-off-the-lights scenario.


But that does not mean there will not be other disruptions. For one, the 590,000 students who use work-study programs to help pay the bills might lose their paycheck. The federal government disburses work-study funds to 3,400 schools, which provide subsidized jobs for students. If those disbursements get interrupted, that might impact students' paychecks.

The shutdown also might affect the low-income students who use the Perkins Loan Program, which provides low-cost loans for college. The program works by making new loans to students as older loans get repaid. The program will not be able to make any new loans during the shutdown period.

Corporate IPOs. If you work for a company planning on making an initial public offering of stock in the next week or two, you'd better be prepared to wait. The Securities and Exchange Commission said on Thursday that it will not be able to complete the process for companies to register new shares during the shutdown: It will only have a few hundred employees working, out of nearly 4,000. The number of companies influenced looks to be small, particularly if the shutdown is short. But this could have an impact on companies that are counting on that funding stream soon, or it could delay any number of IPOs in process.

Jobs and unemployment data. The bean-counters at the Labor Department and Commerce Department do not count as essential, the government says. That means delays and disruptions to economic data-gathering, as well as the announcement of any number of figures like import prices and the trade balance. The "establishment survey" of businesses—used to determine payrolls and job growth—and the "current population survey" of households—used to determine the monthly unemployment rate—might well get disrupted. Traders trade, businesses plan, and economists advise on the basis of such government data. Any disruption is not good.

Housing and business loans. Suspensions of regular business at the Small Business Administration—where 20,000 workers are getting furloughed—and the Federal Housing Administration mean no new government-backed business loans or home mortgages will be issued during the period of the shutdown. Right now, most banks are advising small businesses to keep up with the loan application process during the shutdown. As for housing, some banks have said they will continue to issue the FHA-rate loans during a shutdown, expecting to get government backing once everyone is back at work. But JPMorgan Chase, for instance, said that homeowners will simply have to wait. Given that the FHA loans account for about 30 percent of the market right now, there could be an effect on home prices if the government shutdown lasts long enough.

Annie Lowrey is a contributing editor for New York magazine. She can be reached at


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