Cash Strapped

By Angie Gent

October 19, 2007 7 min read

CASH STRAPPED

Young adults more likely to be starting out in debt

Angie Gent

Copley News Service

College graduation. Financial stability. Marriage. Home ownership. Children.

Hallmarks of adulthood? Not anymore.

Thanks to a shift in government policies and the economy, today's new graduates have more detours on the road to adulthood than their baby boomer parents did. Today, young adults are more likely to start their adult lives steeped in debt and facing an uncertain job market. As a result, those traditional steps in the path to adulthood may have to wait.

Welcome to the new Real World.

ON THE RISE

For those in the know, the bleak forecast isn't a surprise.

Tamara Draut, director of the economic opportunity program at Demos, a New York think tank, says changes during the past 30 years have given rise to the financial hardship facing today's young people.

"Adulthood has always been difficult," she explained, "but a generation ago ... you had union jobs with decent wages, states invested in colleges, you had cheap state college tuition, more affordable and more accessible health care, and you didn't need half an alphabet in college degrees to get into the middle class."

Draut, author of "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead" (Anchor, $13.95), specifically cites rising college tuition costs, decreased government assistance for higher education, stagnant wages, increased housing costs, deregulation of the credit card industry, lack of health care and skyrocketing child care costs as central reasons for young adults' financial woes.

Statistics seem to support her argument. According to the Project on Student Debt, about two-thirds of recent graduates carry student loans, and their average debt has increased by more than 50 percent over the past decade, accounting for inflation.

On average, college students graduate with about $19,000 in loan debt. To boot, interest rates will rise in July, resulting in payments 20 percent higher than the 2004-2005 rates, more than doubling the total interest paid over the life of the loan.

Medical costs are an issue because roughly one in three people, ages 18 to 34, is without health insurance, Draut says. And those wanting to raise children can expect to pay about $800 a month for a child under age 2, says the U.S. Department of Agriculture.

Then, there are the credit cards.

EXTRA CREDIT

Credit has become, in Draut's words, "a plastic safety net."

According to Demos' figures, the average credit card debt among indebted 25- to 34-year-olds increased by 55 percent between 1992 and 2001, to $4,088 (in 2001 dollars). For those 18 to 24, that increase was 104 percent, to an average of $2,985 (in 2001 dollars).

Victor Russell, a manager for Consumer Credit Counseling Services, thinks that easy access to credit - made easier by on-campus marketing by credit card companies - is increasingly lulling young people into a false sense of security.

"The single biggest factor is the availability of money, the ease of getting it and not knowing the cost of money," he said. "The maturity level is not there to make those prudent decisions."

That reality hit home for him when he counseled eight young people in a row one day in 2004. All of them had credit card debt, ranging from $1,200 to $35,000, none of them had a full-time job and all of them were using the cards for living expenses.

"When you start using a credit card or 'loan card,' to cover odds and ends, that's when you have a problem," he said.

Thirty-year-old Kate Wollam of Minerva, Ohio, knows what that's like. She discovered credit cards in college - "It was really easy to sign up for 100 credit cards and get a free T-shirt," she said - and racked up $5,000 using them "for everything."

It was a mistake Wollam paid for by moving back in with her parents for a year so that she could save money and pay off the cards.

OUT OF SIGHT

Though Wollam paid off her credit cards, she still isn't in the black.

After graduating in 2000 with a bachelor's degree in communications and working as a grocery store manager, Wollam decided to attend graduate school. The move proved to be wrong for her, and she quit. Now the temp agency personnel manager pays $50 a month to pay off $5,000 in student loans.

"I probably should pay more on it," she admits. "It's a constant bill that I don't think about much."

Wollam's attitude sums up those of many college students regarding their impending loan payments. When asked, most don't know the amount they're borrowing, the amount of interest they'll pay or what the monthly payments will be.

As Walsh University freshman Arthur Zurcher put it, "I'll worry about it when it comes."

Hearing the post-graduate horror stories or knowing people who've lived them doesn't seem to faze current students, either. Through hope, optimism - or simple naivete - they believe they will find jobs and be able to pay their bills.

Amanda DeSantis, a junior history and education major at Kent State University Stark Campus, is proud of the fact she's used as little of her financial aid as possible and doesn't use a credit card. Still, she anticipates she'll have about $10,000 in loans to repay. She's optimistic she'll find a teaching job, but she also sees the need to be realistic about her future finances.

"I'm not going to make $75,000 a year," she said. "I'll be making about $25,000, so I have to realize that I'll be paying it back on that salary."

Fellow Kent Stark education major April Hazen is in the same boat, but she's a little more wary of her future. In the end, she says, college students have to hope for the best but prepare themselves for the worst.

"You have to expect it will be a while before you get a job, maybe a year, and you have to be willing to work another job," the sophomore said. "I think there will be a lot of sacrifices, but I'll do whatever I have to do to get a job and not be picky. It's a lot to think about."

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