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America’s Student Loan Crisis: It’s Not the Debt, It’s the Lack of Jobs

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Congress is reportedly close to a deal that will prevent rates from doubling on government-backed student loans. The decision only affects rates on new Stafford loans for undergrads for the 2012-13 academic year, which would rise to 6.8% from 3.4% if Congress didn't act.

While good news for students and a rare act of bipartisanship, it's a minor victory for in the wider battle to get a handle on America's student loan crisis.

Here are some of the grim statistics:

  • Student loan debt hit $904 billion in the first quarter of 2012, up from $241 billion a decade ago, according to the New York Fed's quarterly report on household debt. (The Consumer Financial Protection Bureau puts total student loan debt above $1 trillion.)
  • More than 37 million Americans have some student loans, with an average $23,300 of debt in 2011. Among those borrowers, 10% owe more than $54,000 and 3% more than $100,000, The NY Times reports.
  • Americans are increasingly falling behind on their student loans. Long-term delinquency rates now stand at 8.69%, up from 6.13% a decade ago. That's higher than the delinquency rates of mortgages, auto loans and home equity lines of credit, albeit down from a peak of 9.17% in the third quarter of 2010.

It's not surprising more Americans are falling behind on their student loans, given the state of the job market. The unemployment rate for Americans aged 18-29 is 12.1% and 'unofficial' rates are much higher. More than 50% of recent grads are under- or unemployment, according to a recent investigation by the Associated Press.

"The big problem isn't the loans, necessarily, it's the economy," says Charlotte Sawyer, a student at Ave Maria University in Florida. "We can't pay back loans unless we have a job, no matter how high or how low the rates are."

In the accompanying video, I discuss the Senate move on Stafford loans, the cost of college and the challenges for new grads with Sawyer and Paul Conway, President of Generation Opportunity, a non-profit that seeks educate so-called Millennials on the nation's economic challenges.

"Lack of opportunity" for new and recent grads is the "most essential issue," Conway says. "We don't see this as a Republican or Democrat issue -- these are American issues. The employability of these folks is quite high; the fact is there aren't the jobs."

While Generation Opportunity describes itself as "non-partisan", Conway's recommendations have a conservative slant, which isn't surprising considering he worked as chief of staff for George W. Bush's Labor Secretary, Elaine Chao.

"I'd encourage folks in Congress to understand: government simply can't on its own jump-start the number of jobs that are needed by young adults right now," he says. "Government must step back and get out of the way and let those who are entrepreneurs and the next generation of business leaders step forward and take a risk and create jobs for those who are in their generation and other Americans."

Topping Conway's prescription to revive jobs: Reduce government regulation and lower taxes on businesses.

Whether you agree with that or not, it's unlikely Congress will take any substantive action until after the November elections, at the earliest, leaving new and recent grads stuck in student-loan limbo.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

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