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Big squeeze for grads: Student loans rise, job opportunities dim

College grads have to pay back ever bigger student loans. But job opportunities are slim. Is US competitiveness at stake?

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"If your debt at graduation is less than your job's starting salary, you can repay the debt in 10 years," says Kantrowitz of FinAid.org, based in Cranberry Township, Pa. "But if you've needed to borrow more than that, a repayment plan could stretch the loan out 20 years. About one-third of this year's college grads are in that situation: They'll be paying back student loans when their children are ready for college."

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Political developments could make matters worse. One of the few specific budget cuts put into this summer's compromise over the national debt limit involved college loans. Starting next July, the US government will no longer subsidize interest on federal Stafford loans for graduate and professional students, making the loans costlier for some students. Another change: As of next July, incentives for repaying federal student loans on time will largely disappear for both graduates and undergraduates.

This fall, the congressional "super committee" charged with finding an additional $1.5 trillion of spending cuts over 10 years could further nip at education. Some items that the committee might at least weigh, some experts suggest:

•Tightening some qualifications for federal Pell student aid grants.

•Removing interest rate subsidies needy undergraduates get (which keeps interest from accruing until students begin repaying their loans).

•Eliminating some educational tax credits.

How much worse could the super committee make things for students? "Every dollar in grants that gets cut likely translates into about $1 in [student] debt," estimates Kantrowitz.

Steeper loan repayments could have a broader economic impact, eating into the discretionary spending of indebted graduates just when they'd otherwise be opening up wallets for everything from homes to baby clothes.

And at some point, national competitiveness could be hurt. Those who "have trouble repaying loans can send signals to other students to pursue less education," points out Cristian deRitis, a director in the West Chester, Pa., office of Moody's Analytics. "That would have a broad economic impact" since "our economy needs an educated workforce to grow and be internationally competitive."

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