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.
Consider Jenn Sanchez and Leslie Garza, roommates and sophomores at Texas's Austin campus. According to the federal financial aid guidelines, Sanchez's parents are supposed to contribute $5,000 a year. "I'm lucky if they give me $5 to go to McDonald's," she says. Garza receives $3,800 in loans and grants per semester, about half of which she sends to her mother who, Garza says, "is in extreme debt herself." Despite working between 25 and 30 hours a week, both Sanchez and Garza expect to owe more than $20,000 in student loans by graduation.
But if college costs put Sanchez and Garza in a bind, so does their own behavior. Though they could eat more cheaply at home, they often dine out. They could resist the lure of Austin's many clubs and bars, but they don't. "I guess I use cards to get stuff I want but don't need--or can't afford," Sanchez says. She has 18 credit cards and a balance of $12,000.
For many students, it starts in their freshman year. "You've got all this freedom," says Tara Copp, editor of the school newspaper, the Daily Texan. "And then you have all these credit card companies saying, 'Look, we're going to extend you a thousand dollars in credit.' " Her freshman year, Copp charged about $2,000 on six credit cards even though her father gave her tuition money plus $600 a month for expenses. Spending the $2,000 was easy, Copp says: two trips to New Orleans, new outfits for sorority parties, and a good many pitchers of beer. Lawrence Burt, UT's financial aid chief, remembers an even more vivid example of lifestyle debt: He once saw a student in the financial aid line talking on a cellular phone.
Keeping up with the Coxes. One explanation for such debt, argues economist Juliet Schor, is the widening gap between the wealthy--who dominate popular culture--and the rest of the country. More image conscious than other age groups, young people are especially prone to thinking they need to emulate the "normal" lifestyle of, say, Courteney Cox's character on TV's Friends. But this fictional world is pretty cushy. For many, the only way to afford to live so well is through the magic of plastic.
Basic ignorance exacerbates the problem. In a recent survey by the Consumer Federation of America, 78 percent of college juniors and seniors didn't know that the best way to figure out the cost of a loan was to look at the interest rate. Card companies take advantage of the confusion. "Congratulations!" one company informed a debtor. "You have qualified to skip this month's [minimum] payment." But skipped payments benefit only the lenders, who are charging sky-high interest.
Debt is shaping the career aspirations of a generation. Desiree Saylor, a senior at the University of Texas, says she had hoped to work in academia as a physical anthropologist. "If I didn't have this debt, I'd go for it," she says. But she has $16,000 in debt and has decided on the higher-paying career of occupational therapy. Even the children of the wealthy find career options affected by their debt. The two sons of Joseph Biden, who makes six figures as a U.S. senator, have amassed $196,000 in student debt between them. The younger worked at a homeless shelter between college and graduate school, Sen. Biden says, but "with his debt, there's no possibility he could take a job there." With a third of all medical school graduates owing more than $75,000, few can work in low-paying health clinics.
Of course, given the long-term benefits, the vast majority of college students are investing very wisely. And young Austinites know well the inspiring story of Richard Linklater, who filmed the acclaimed movie Slacker there by charging $23,000 on credit cards.
On the other hand, many incur college debt and never get a degree. Among the quarter of students with the least money, only about 1 in 5 will get a bachelor's degree within six years of entering. And Linklater's success is hardly the norm. Linklater says aspiring filmmakers regularly approach him, stacks of credit cards in hand, with "nothing now, or probably ever, to show for it."
This story appears in the June 9, 1997 print edition of U.S. News & World Report.