(LIN) — It's a never-ending cycle. To get a good job, you have to go to college. But to go to college, you need money, and the easiest way to get it is applying for student loans.
Luckily for college kids, the U.S. government makes it very easy to take what you need to pay the astronomical tuition bill each semester. But maybe it's a little too easy.
Today, the federal student loan program is the largest consumer debt class after home mortgages. And unless Congress passes legislation, the interest rate on new government-subsidized Stafford loans is set to double on July 1 – to 6.8 from 3.4 percent, creating an even bigger crater for college grads to have to dig themselves out of upon graduation.
It's a $1.1 trillion problem that Washington doesn't want to talk about. Why? They are profiting from it as millions of borrowers are paying record relative interest rates.
Twenty years ago, one in 10 Americans owed some form of student loan debt. Today, it's one in five. And while the cost of education continues to rise, the value of college degrees continues to diminish.
In 2012, the Associated Press conducted a survey based on information from the Census Bureau's Current Population Survey and U.S. Department of Labor. It showed that 1.5 million – or 53.6 percent – of Americans 25 and younger with a bachelor's degree were either jobless or underemployed, which is the highest share in the more than a decade.
What many fail to realize is the domino effect this will create outside of college grads.
For instance, if you can't find a job to help pay down your loans, you put of the standard grown-up things: finding a soul mate, getting married, buying a house and having kids. According to the Project for Student Debt , the average student graduates with $26,600 in loan debt. And for the first time ever, the student loan default rate now exceeds the credit card delinquency rate.
When borrowers default on their loans in the private sector, safeguards are in place to try and curb that from happening again - interest rates rise, it becomes harder to borrow and more requirements are needed. When the lender is the federal government, there is no incentive to make it harder to borrow because in in the end, that cost is passed on to someone else.
Does the federal government want young Americans indebted? It's hard to say. While the "American dream" of hearing success stories after four or more years of higher education is desirable, the more people borrow and the higher the interest rate means more money to the federal stakeholders.
What's needed is a real grip on the value of education and what it's really worth, a better checks and balances system and a gut check on what the federal government's real priorities are.
Until that happens, Gen Y will continue to enter the workforce already behind, and continue to play an indefinite game of catch-up on their path to financial success.
Gen Y is a weekly opinion piece covering issues that matter most to young, influential Americans through their late 30s. Jessica O. Swink, a 20-something, is the digital political producer for LIN Media and contributing editor to onPolitix.
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