Yale Suing Former Students: Pay Back Loans or Else

A stagnant unemployment rate is beginning to affect college graduates who are now being sued by schools for failing to pay off loans.

Over 157,000 jobs were added to the economy in January, offering hope to many who have been seeking work for months. Those jobs failed however, to improve the unemployment rate, which has continued to drag down many ready and able workers- including young graduates.

Not even an Ivy League education will be enough to save the number of young adults struggling to compete with more seasoned resumes. As a result, thousands of students have defaulted on their loans. The rate of student loan defaults jumped from 8.8 percent in 2010 to 9.1 percent in 2011, according to the U.S. Department of Education, representing over 375,000 students.

"I live on the bare minimum," Aaron Graff, a farmer's son from Denver, told Bloomberg. "It's not like I'm defaulting on my student loans to live the lavish life. I'm defaulting on my loans because I really don't have it."

That excuse is not enough for universities who are struggling to regain those debts in order to provide financial aid to new students, who are also struggling. Unlike other federal loans, Perkins loans are paid out directly by universities.

"Perkins loans are issued from a revolving fund, so any monies recovered through litigation increase universities' ability to help other students with education costs," Candace Smith, a spokeswoman for George Washington, said in an e-mail to Bloomberg.

Yale, Penn and George Washington University have all sued former students over nonpayment on Perkins loans, the business report said. It's an attempt to gain the billion or so dollars that has been defaulted on by graduates whose education has failed to pay off.

Neal McCluskey, an associate director at the Cato Institute in Washington, blames students for failing to accept responsibility.

"You could take a job at Subway or wherever to pay the bills and that's something you need to do if you have agreed in taking a loan to pay it back," McCluskey told Bloomberg. "It seems like basic responsibility to me."

Perkins loans often come with higher interest rates and increased fees, in addition to disqualifying borrowers for the Income Based Repayment plan and its benefits. Other universities have stated that pursuing litigation is not the best way to handle the situation.

"It's not that we wouldn't do it," a University of California representative said . "It's not that practical."