In Debt All the Way Up to Their Nose Rings
Between credit cards and student loans, gen X-ers find debt a major life force
It's not just a figure of speech to say credit cards these days are being passed out on college campuses like candy. Monet Martin discovered this her freshman year at the University of Texas--Austin when someone offered her a pack of Twizzlers and a Discover card application. Soon, she was $2,800 in the hole.
Martin hasn't yet tried the debt-management technique of her friend Yashika Gomes, another student at UT. After charging her way through Europe last summer--and doubling her credit card balances to $4,500--Gomes immersed her three cards in a mug of water and put it in the freezer, a trick learned from Oprah. It actually worked, until a fire ripped through her room and she had to thaw the cards to buy new clothes and furniture. Now she owes $7,000. Both Martin and Gomes are also borrowing their way through college--they owe about $17,000 and $22,000, respectively.
Generation X may be best known for political disaffection and a tiny attention span, but its most defining characteric may be debt. Two trends--the growth in student loan volume and the proliferation of credit cards--have combined to profoundly alter the behavior of young adults. Required to borrow in order to finance their education, members of this generation have no qualms about using credit to pay for comfort or even luxury. The moral imperative of living within one's means seems as distant as the Great Depression.
Consider that between 1990 and 1995, the average outstanding credit card balance of households headed by someone under 25 grew from $885 to $1,721. Carrying plastic is the norm for young people--65 percent of college students have cards, for example--and they are more prone than those in other age groups to get in over their heads. Of the debtors seeking professional help at the National Consumer Counseling Service, more than half are between 18 and 32.
The bucks start here. Meanwhile, the past two decades have seen not only explosive growth in the cost of college but a dramatic change in who pays. From 1974 to 1994, the average cost of four years of tuition, room, board, and fees at public universities rose from $11,032 to $25,785. Private school costs went from $25,514 to $64,410.
Reacting to growing costs, Congress through the '80s and '90s expanded the student loan program, while scrimping on no-strings-attached grants. Undergraduates can now borrow up to $46,000 and graduate students, $138,500, in federally guaranteed loans--and many approach these high limits. So far this decade, students have borrowed at least $140 billion--more than total student borrowing over the past three decades combined. Since 1977, median student loan debt has leapt from $2,000 to about $15,000.
At the same time, parents have been bearing less of the burden. In interviews with U.S. News, financial aid administrators at a dozen different schools agreed that parents' contributions haven't nearly kept up with college costs. "Rather than pay out of their pocket," many parents expect their children to borrow, says Lawrence Burt, director of UT-Austin's financial aid office--"even if they can afford to pay tuition." In the only national survey on this question, taken in 1991, just 26 percent of student borrowers said their parents paid for more than one fifth of college costs. Studies have shown that typical parents pick up about 10 percent of their kids' student loans.
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