Budget Basics
In too deep Is generation Debt the next big political movement? Or are they too broke and tired to fight?
August 9 , 2006
by Sarah Klein
Marisol Ybarra resisted the temptation as long as she could.
She resisted the vibrant, bold fliers promising fun and freedom, featuring beaming students blessedly released from the weight of financial burdens. She resisted the smiling coeds about the campus and their soundly convincing pitch: Just a quick signature on the dotted line and you'll never have to eat ramen noodles again!
But eventually, the twenty-something Ybarra was seduced. And then she went a little crazy. At one point the cash-strapped Ybarra had almost 10 credit cards, with a combined debt of nearly $20,000. When her student loans didn't cover the cost of tuition, she charged it. When she couldn't afford books and supplies, she charged it. When she didn't have the cash for food, she charged it.
"They were giving them to me like candy," she recalls of the credit card companies, which first ensnared her in their grasp on the campus of Henry Ford Community College where she began her studies in 2000.
Now 31 and a senior at Wayne State (she's to graduate with a degree in sociology next May), Ybarra has managed to shave her credit card debt down to (a mere) $3,000 — but now must contend with the other debt looming over her head: more than $20,000 in student loans.
Despite working two jobs, sacrificing a social life and sleep, and renouncing her reckless spending days, it seems Ybarra just can't win — and she's not alone. Generation Debt has arrived: According to one study, two-thirds of today's college graduates will pick up their diploma along with a load of student loan debt — the average amount is $20,000. At the same time, young people are racking up massive amounts of credit card debt. According to a study by the Nellie Mae Corp., a student loan company, in 2002 the average college senior had six credit cards, with a total balance of more than $3,200; one in five students had a credit card debt between $3,000 and $7,000. Often these charges are for basic living expenses like food and gas — and sometimes, tuition.
"We now require young people to go into debt to have a better future," says Tamara Draut, author of Strapped: Why America's 20-and-30-Somethings Can't Get Ahead. "We've gone from helping young people pay for college to helping them borrow." Draut is one of the experts who claims the problem has reached "epidemic" proportions — yet the issue continues to worsen as more and more graduates and young people find themselves drowning in debt.
As more and more young people get in too deep, students, parents, educators and lawmakers are proposing solutions. The seeds of a grassroots activist movement against debt are being sown. But is it too little, too late?
Misery loves company
On July 1, parents and students across the country issued a collective groan of despair when the interest rate for Federal Stafford Loans — the basic student loan — rose from 5.3 percent to 7.14 percent. Meanwhile, tuition rates have continued their steady climb and show no signs of leveling off. Oakland University just hiked its rates by 7.9 percent, and last year Wayne State increased tuition by a whopping 18.5 percent. A study conducted by the nonprofit group Project on Student Debt found that tuition and fees at public universities have risen 57 percent in the past five years alone (after adjusting for inflation).
Some of the Project on Student Debt's other findings:
• At public, four-year institutions, 62.4 percent of seniors are graduating in debt — of those, half owe more than $15,000 in student loans.
• At private four-year schools, 73.9 percent of seniors graduate in debt; of those, 10 percent owe $40,000 or more.
• Overall, one-quarter of 2004 graduates borrowed more than $25,000 — a figure that excludes any additional loans taken out by parents.
• Some 66.4 percent of four-year college students (public and private) borrowed in 2004.
Meanwhile, young adults face what Demos, the advocacy group Draut works with, calls "paycheck paralysis." Stereotypes about "slackers" aside, the group says: "The reality is that young workers today are working multiple jobs and longer hours than the baby boomers did in their 20s and 30s. They're losing economic ground because their paychecks are not growing as rapidly as their basic living expenses."
Naturally, this leads to misgivings. In 1991, 31 percent of students said they would have borrowed less if they could go back in time. By 2002, that figure nearly doubled to 54 percent. In other words, more than half of today's students had major regrets about their education.
The Project on Student Debt (projectonstudentdebt.org) says that the give-and-take relationship between borrowing and education has spiraled wildly out of control. Founded last year, the group is dedicated to reducing the burden of debt across the board. Associate Director Lauren Asher says students are forced to make tough choices that affect both their education and their overall quality of life.
"There's been a shift in the way we pay for higher education in this country," Asher says. "Our system assumes that student loans can and will meet the gap — and that's no longer the case."
Asher says students' growing need to work invariably will affect their success rate in school:
"Eighty percent of college students work; 23 percent of fulltime students and 53 percent of part-time students work 35 hours or more a week.
"Our system says, 'Invest in an education, it's worth it — and if you need to borrow, borrow." But on the other hand, it's saying, 'If you borrow and have trouble paying it back, your life can be ruined forever.' Those are very mixed signals, and they're both true.
"That doesn't mean student loans are inherently bad, but we could and should rethink our loan repayment system, so people can make manageable payments and know there's a light at the end of the tunnel."
