The new vicious cycle of student loan debt

As most recent college graduates can tell you: the job market is not so flowery. A recent study out of Rutgers found that from the graduating classes from 2006 to 2011, only 51% are employed full-time and a whopping 11% are unemployed, a number way above the current 3.8% unemployment rate for all college graduates over the age of 25.

Waste of Money for Many

Perhaps a bigger problem for new graduates than unemployment is underemployment. The U.S. Federal Reserve Bank of New York reported recently that 44% of recent graduates have jobs they would have qualified for before going to college and accumulating student debt.

These figures mean, for students who take loans, 44 out of 100 graduates will be stuck paying off an average balance of $24,301 without any equity (a graduate-level job and salary) to show for it. According to the Department of Education, within three years of leaving school 14.7% of these loansdefault and for every loan that defaults at least two more borrowers become delinquent.

If large percentages of student loans are defaulting, millions will face crippling credit rating penalties which result in the inability to finance homes, purchase vehicles, and engage in the marketplace. New borrowers need businesses willing and able to invest in college graduates.

Worsening a Possibility

The economy and job market’s recovery from the 2008 recession have  trickled at an agonizingly slow pace–and it might get worse before it gets better.

The president recently gave a one-year exemption to businesses from Obamacare’s insurance mandate. But what about next year? In 2014, businesses will be required to participate in hugely expensive insurance programs that will prevent them from committing to as many full-time, entry-level employees.

Obamacare’s unintended consequences reach far and wide. Nobody is hit harder by these consequences than the classes of graduates who will enter a post-recession job market that will be worse than before they began school.

Healthcare premiums can’t pay student loan debt. Only paychecks can do that. Those who need Obamacare the least will pay the most for it. The cost may be more dramatic and far-reaching than anyone in 2010 may have ever guessed.

Tom Toth (ttoth@getliberty.org) is the social media director for Americans for Limited Government.

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