Will Obamacare Aggravate the Student Loan Crisis?

August 9, 2013

Although employer implementation of the Affordable Care Act has been delayed, the individual mandate still stands and enrollments are set to begin in two months. While Obamacare has drawn increasing criticism even from Democrats as implementing the plan is proving to be problematic and costly, for now it’s still on.

We’ve written before how profits from the federal student loan program are being funneled to help pay for ACA when it could be used to alleviate the student loan crisis. This is an important national issue, but as always at Tuition.io, we’re concerned with how macro-economic issues impact the micro-economic realities of student loan borrowers. Here’s a look at some of the possible outcomes – at an individual level – for student loan debtors once Obamacare goes fully into effect.

Employment Concerns

Because Obamacare requires employers to provide insurance or pay a stiff fine for all employees working more than 30 hours per week (what the legislation considers “full time”) it has been projected that there will be a cut in full time and an increase in part time jobs. Some have gone as far to call the ACA a “job killer.” In actuality, it may be creating more jobs, albeit part time ones.

While employing one 40 hour worker would require investment in health coverage, hiring on two 20 hour replacements gets the same amount of work done with no coverage required. You can see from the chart above the comparative decrease in jobs with hours greater than 30 weekly work hours and the increase of part time jobs. This isn’t encouraging for debtors struggling to pay student loans even with full time wages.

Coverage Cost Concerns

While the act is dubbed “Affordable Care” in fact it may not be very affordable for many. In Georgia and Florida for instance, proposed rates are 198% of prior rates causing the state of Georgia to ask for a respite from implementing the exchanges until they can try to get costs under control. This would mean that a policy that previously cost $300 would rocket to $600 in the hardest hit areas. And for those who can’t afford the Affordable Care Act coverage, a punishment tax would be levied.

The hardest hit by the policy increases are the youngest and healthiest Americans just entering the job market and saddled with student loan debt woes. If they can’t get full time work as a result of employer ACA avoidance tactics or if the employer chooses to pay a fine (which may be more affordable) rather than providing the coverage, these young people will be faced with the additional cost of paying for mandatory health insurance out of pocket.

Student Loans + Obamacare = Financial Problems

For graduates with average student loans of $27,000, the standard 10 year repayment plan will require a $306 monthly payment. Tack on to that a $480 policy (based on a very conservative $5,800 annual premium expense supplied by Obamacarefacts.com) and the average grad needs to earn $10,200 per year just to pay these two costs. Add in housing, food, utilities and even the most basic living expenses and a salary of $24,000 would have you living in penury! Premium costs look to vary widely by state and can make living where you want to live too costly.

And if you do qualify for a break on the price of ACA coverage based on earning a slim salary, it doesn’t reduce the amount you have to pay each month, it offers you a tax credit to offset it. But that comes with an easily observable Catch-22. If you can’t afford the premiums up front you won’t qualify for the tax credits designed to offset the premiums. And if you can’t buy the coverage to start with, you’ll be saddled with a fine/tax. Paying the penalty will make it more difficult to afford coverage.

Do you see the terrible merry go round of debt that starts? And if you have no coverage and do get sick, that’s more debt. Oy, where does it stop?

Get Control of Your Student Loans Now Before ACA Kicks In!

If you’re already struggling with student loans, the implementation of the Affordable Care Act may not do your finances any favors… But you still have time to get your student loan house in order before the exchanges start enrolling in October.

Check out our blog for information and strategies on dealing with debt and sign up today for Tuition.io’s free student loan tool to get an accurate snapshot of what you owe right now and tips on how to optimize your debt. With this information in hand, you can explore repayment options that can help you gain and keep control over your student loans!