Student loans, student defaults and unemployment among recent college graduates have
been intensely disucssed because of the economic upheaval of the past few years.
A mid-2012 briefing paper by the Economic Policy Institute suggests that young people
including those with a college degree face unemployment at a rate that is double that of
their parents. This unemployment is not because they have a lack of skills but because
there are just not enough jobs in the market.
The unemployment rates for college graduates in 2011 8.8%.
Defaulting on a loan has several serious consequences including adding significantly to
the cost of a loan and ruining the borrower's credit score. The stakes are high because
vulnerable students attempting to better their lives face severe consequences if they
default on federal student loans. The government has nearly boundless powers to
collects student loans, far beyond, those of normal creditors.
The U.S. government plays a large part in the student default debacle. Through its
student aid programs, the government provides almost limitless credit and at the
same time lower than market interest rates. The U.S. government has allowed
schools to raise tuition without the demand constraint that would normally exist
in a market.
Student debt is another debt bomb. The effects of an increasing number of
people defaulting on their student debt will only cause more suffering to the
already fragile U.S. economy.
Sheila McKinney
