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The Real Debt Threat: Student Loans

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Nick Muellerleile graduated from USC in May as a member of the prestigious Phi Beta Kappa society. Five months later, he is now living on about $2 per day, which he says he spends on what he says are "luxuries -- like food."

"Luxuries" like basic living expenses are what young people, like Muellerleile, are struggling to afford even though he has what seems like a real "luxury" to most: a job. The national unemployment rate still hovers at around 9 percent, with the biggest portion of that being America's youth. But we don't hear as much about the population with the biggest percentage of unemployment: America's young people.

The number of young people looking for jobs is higher than ever -- the unemployment rate for young people is currently upwards of 20 percent. For young African-Americans, it jumps to nearly 30 percent.

What's more staggering is that the number of youths actually looking for work is only about half, a statistic that President Obama mentioned in his recent jobs package. More and more young people are saying that they would move overseas to find a job because they are disillusioned with their prospects here in the U.S.

"If I could speak to my former self, I would tell myself where there is the opportunity to get a job abroad to take it, and live a little more adventurously," said Katrina Kaminaka, a former forensic psychology student who is currently unemployed. Saddled with student debt and unable to pay her credit card bills and rent, she was forced to move back in with her parents. It's a lose-lose situation: living at home, she is farther away from employment opportunities in her field. But she can't strike out on her own to pursue those opportunities, because she can't afford it.

Muellerleile admits that his salary "is not wholly unacceptable," but by the time he subtracts expenses like rent, utilities, insurance, and gas, any earnings dwindle to about $2 per day.

"The worst thing is, I should probably consider myself lucky to even be there," he said. "I'm no longer an intern; I have (at least right now) a job where I'm given actual responsibilities. I'm even getting paid -- in this economy!"

Muellerleile was a good student at a good university. He's also a good employee; it took him less than a month to advance from an unpaid internship into his current role with salary.

"And yet I make less money than the person making my sandwich at Subway," he said. "How much harder do I have to work to get to the point where I'll make the minimum wage?"

Minimum wage in the last 10 years has increased negligibly compared to the increase of student debt: a whopping 511% just since 1999.

The collective student body hasn't increased dramatically; rather, the burgeoning student debt is a byproduct of the availability of cheap money out there and ready for the taking from college-aged students. And it's being paid off slower than ever, if at all. The U.S. Department of Education just announced that the national default rate for student debt hit 8.8% for 2009 -- up from 7% in 2008. Creditors, scholars, and students alike are asking: what if the bubble bursts?

Only now paying off the remainder of his student loans, President Obama is trying to help. His administration is trying to make it easier for students to pay debt back -- tightening loopholes to protect students from aggressive or misleading creditors and creating programs to make sure they are gainfully employed after graduation.

Some private employers are helping their young employees to pay down debt, and most public service or government jobs have programs in place for student loan forgiveness after employees make a certain amount of debt payments while working.

But is it enough? Student debt now totals up to $550 billion -- a significant part of the nation's debt. According to James Altucher, author and financial commentator, college costs have risen 1000% in the past 30 years -- outpacing healthcare, which has risen 700%, and inflation, which has risen "only" 300%.

"Colleges have made use of the myth that you can't get a job unless you have a college education," Altucher wrote in a recent article. "So young people feel a rush to get that college out of the way so they can get a job and 'begin' their adult lives." But the problem, he said, is that by the time many students graduate, they are so burdened by student debt that they can't enjoy their newfound knowledge and skills, or create a meaningful, happy life for themselves.

If you judge by the acceleration of the rate of defaults, the pop of the student debt bubble seems more imminent than we'd all care to believe. After the bubble bursts is obviously too late for real attention to be paid to this indebted lost generation. Now is the time to find them and save us as a nation.