It's like Congress is trying to cause a major recession.

In a bold move to set the country on track for a recession, Congress is working on a bill to cut Federal student loan funding by $12.7B over 5 years.

College costs have been rising steadily, with a 2005 increase of 5.9% for public schools and 7.1% for private schools. Less money for loans and more expensive schools equal less people going to college. This is obviously going to hurt the country in the long term, especially in today's ultra-competitive globalized economy.

But what concerns me more, in the short term, are the following lines from the story:

"The interest rate for parent loans would increase to a fixed rate of 8.5 percent in July. It is now a variable rate and had been set to move to a fixed rate of 7.9 percent" and "Meanwhile, the interest on students loans would also move to a fixed rate of 6.8 percent in July, up from its current variable rate of 4.7 percent."

How much money is the median student borrowing? $16,500 for an undergraduate education in 2002.

At 4.7% and 10 years to pay, the montly payment for a student loan is $172.60.
At 6.8%, the payment is $189.88. While this might not seem like a big jump, the "manageable threshold" for student loan debt is supposed to be 8% of gross monthly income. At 4.7%, the student needs to make $25,890 a year. At 6.8%, the student needs to make $28,482 a year, or $2,592 more a year just to cover the same level of debt.

So why will this help push the coming recession?

Employers have a big problem. The baby boomer generation is getting to retirement age. This means they need to replace an awful lot of experienced workers. With the change in student loans, the number of qualified applicants is going to be smaller AND they are going to demand significantly higher wages.

$2,592 a year doesn't seem like a lot until you scale it up to the level of a very large employer. Take General Electric, with it's 307,000 employees for example. Assume that 25% of them are college educated (or 76,750) and that 3% will retire this coming year (or 2,303). Add the cost of benefits and employers taxes to those wages (we'll go with 30% or $3,370 per employee) and your required wages increase by $7.75 million dollars. Ouch.

Can you see how that might put expansion plans on hold?