STUNNING REPORT ON STUDENT DEBT
Twentysomethings Come Home For Holidays Bearing Debt
By Todd Wilkinson, 11-20-06
This week, millions of young people will be coming home from college to enjoy Thanksgiving with their families.
If a new must-read series from USA TODAY is any indication of what's on the minds of late teens and twentysomethings as they sit around the dinner table toasting their future, America's brightest are feeling a heavier burden than their predecessors. The chain around their necks is debt.
"Thirty years ago," write USA TODAY reporters Mindy Fetterman and Barbara Hansen in their excellent series started this week titled Young and In Debt, "the 'generation gap' reflected the cultural gulf between World War II-era parents and their children. Parents then just didn't get sex, drugs and rock 'n' roll. Today, the gap is about debt."
As a corollary, if those same young people grow up in the Rocky Mountain West, home of skyrocketing real estate and inward population migration of retirees and other lifestyle pilgrims, it's also a safe assumption that many will be unable to return home after graduation elsewhere and find a job that pays them enough to buy a home AND pay off their other loans.
In small college-town cities like Bozeman, for example, the cliche for homegrown engineering students has long been that graduates of local Montana State University will head off and work for Boeing in Seattle, pay their dues, bank as much as they can, and then return home flush to take a lesser-paying job and raise their families.
Is that strategy still viable?
Or maybe they can just go into selling real estate?
Granted, the natural response from the "elders" of these kids might simply be to portray them as a bunch of whiners who live a spoiled life compared to the college days of their more frugal parents--many of whom worked their way through college. However, the story notes that college costs have vastly outpaced inflation.
What's the solution: Lecturing kids about being more fiscally responsible in light of the spending habits in Congress? Opining that the free-market will somehow take care of it? Launching a federal probe into why college costs are so high? Or do nothing, causing more U.S. young people to stay out of college and then continue to lament that America's workforce is falling farther and farther behind that of other nations?
Fetterman's and Hansen's report raises many troubling questions not only about the fewer choices that young people appear to have across the nation due to their indebtedness but what the cost of that debt will be on society, the economy, and the nation's psychology. After all, this generation will be the one toiling through adulthood for the next half century to prop up the weight of federal Social Security and medical programs for elderly Baby Boomers.
Here are just a few of the danger signs highlighted in the story:
- Nearly two-thirds of the twentysomethings analyzed carry some debt, and those with debt have taken on more in the past five years, according to credit records of 3 million young people that Experian, the credit-reporting agency, did for USA TODAY. "Their late payments are rising, and they're more likely to be late than other Americans are," the reporters note.
- "Nearly half of twentysomethings have stopped paying a debt, forcing lenders to "charge off" the debt and sell it to a collection agency, or had cars repossessed or sought bankruptcy protection."
- "Although the percentage of people ages 22 to 29 with debt has declined, their total debt is up 10%, to an average $16,120 as of Aug. 1, compared with five years earlier, Experian's analysis found. Every type of debt -- from credit cards to college to personal loans -- has risen."
- "Student-loan balances rose 16% to an average of $14,379; revolving debt, including credit cards, surged 24% to $5,781; and total installment debt, including student and personal loans, rose 4% to $17,208. (Comparisons are adjusted for inflation.)"
- "Though total federal student aid has grown sharply, so has the proportion of people in college. In 2004, 67% of high school graduates enrolled in college; in 1972, only 49% did. As a result, student grants cover only 39% of the costs of a four-year college today."
- "Debt has forced some young people to change their career plans. Of those surveyed, 22% say they've taken a job they otherwise wouldn't have because they needed more money to pay off student-loan debt. Twenty-nine percent say they've put off or chosen not to pursue more education because they have so much debt already. And 26% have put off buying a home for the same reason."
Another telling statistic that should cause parents to perk up--especially parents who take solace believing that with the kids having flown the nest to college, mom and dad can now enjoy quiet time around the house—is that the kids are either coming home to live with their parents or never leave.
"The Boomerang Generation -- young adults who return to live with their parents -- is real, too," USA TODAY notes. "In the poll, of 910 twentysomethings, 19% said they've moved back with parents to cut costs. The 2000 Census found that more than 25% of 18- to 34-year-olds had moved back in with family at the time the Census was taken."
If you are a college student (or the parent of a college student), tell us if this story resonates with you?
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As a natural born cynic, sometimes I wonder if this deplorable situation isn't at least in part deliberate. Contrary to the claims of boosters of the American way of life, and all the talk of freedom, it seems that what business and government want are slaves, and one way to accomplish this is to create a society that is so in debt that freedom isn't an option. It is simply absurd to put nearly 400 billion dollars into Iraq, with what we all (or some of us) can agree has provided no return to this country whatsoever, but put so little investment into education, higher or otherwise. And I'm not talking about teaching people to take useless standardized tests, which is the situation with K-12 today.
As it is now, it seems that the university is little more than a stovepipe of workerbees for industry. What happened to the liberal education? I remember some years ago when I was living in Laramie that the University of Wyoming proposed eliminating the Philosophy Department and merging it with the English Department. The proposal failed, but it seemed indicative of what has been happening in general. I've heard of similar attacks on the humanities in other colleges and universities. Surely, part of the point behind such attacks on the humanities is that an engrained habit of critical inquiry is not welcome in either industry or government. Witness the attacks on scientists whose research clearly point to anthropogenic climate change. But the onslaught on critical thinking is occuring in all sectors of (post) modern society. It's the new Dark Ages, it seems. This state of affairs is profoundly disturbing to me, as it already is to my perspicacious daughter.
Perhaps the newly elected Democratic Congress can rectify this situation, but I'm not holding my breath.
I am at the point that I am unsure if I will ever be able to make it into the middle-class (or whatever exists in its place), unless I decide to go out an work on a drill rig. Which unfortunately is becoming a more attractive option as every day passes.
Today, a lot of college students have consumer debts while the attempt to hang onto the consumerism their parents taught them. Still, there's no doubt that we've seen a huge shift in the cost of education from taxes to private dollars. Rethinking college "core curricula", investing more in two year institutions, and even putting a surtax charge on excess credits over a certain number needed to graduate, and introducing competition into all levels of education are just a few of my suggestions.
Dutch go out and work that oil rig. It'll make a man out of ya. Once you've had to work that hard, and get that dirty, and risk life and limb, you will value money a little bit more for what it is, a measure of effort and time and thought. Those who are worker bees sure beat the heck out of those grasshoppers going though life singing "the world owe me a livin".
Watchin that oil rig I helped put together pull itself up and then putting it to work was quite satisfying. Muy macho, too!
As for philosophy and "oh, the humanities" it's a matter of supply and demand, isn't it? Listening to some chronic dope smoker praise the noble primitive isn't gonna prepare us to compete with a billion chinese. I think a "liberal education" can be found at most universities and especially in the political science departments.
If you're looking for a "classical education" it can be found in some of the most conservative private high schools in the country. I can't be found very often in public education, though.
It is also a good idea to show them a copy of your credit report and the effect of credit cards and other debt on their credit score and future financial options. They need to know that mistakes and bad decisions will not be forgiven by the issuer just because they didn't know better.
Good Rules for College Students Using Credit Cards.
* The most important ground rule for credit cards should be to only use them for emergencies, not for gas, food/groceries, or clothes. It is too easy to use the card for a quick meal or impulse
purchase without considering the premium a high interest rate will add. According to Nellie Mae, 71% of undergraduates use their credit card to buy school supplies, textbooks and food.
* Pay off the balance each month. 21% of undergraduates with credit cards reported that they pay off all cards each month; 44% say they make more than the minimum payment but generally carry forward a balance; 11% say they make less than the minimum required payment each month (Nellie Mae).
* Avoid department store credit cards, especially at a time when it will be easy to get a standard MasterCard, Visa or American Express. Although a discount to a favorite store sounds like a good idea, store cards have the highest rates available.
Use a credit card comparison website like Lowcards.com to find the lowest rates and terms for student credit cards.
* Avoid using credit cards for cash advances. The rates are extremely high.
* Get only one card and pay it off each month
* Know your credit limit and look at it each month. The credit limit may be as low as $500.
* Pay your bill a week before the date it is due. Default rates also apply to college students. One late payment or exceed the credit limit and the rate will jump to approximately 30%.
I'd propose a voucher for each college bound child with a "C+" average and above, and tighter entrance requirements for the flagship U's. Let the kids vote with their feet, and see if "university spending as pork" would give way to an efficient, consumer demand driven system. As it is now, the two big schools pay some of their tuition dollars to the smaller schools to keep them afloat.
The solution isn't more taxation, it's better priorities, and fewer uses of university dollars as pork.
I am not so sure on the voucher idea. At least on the grade requirement. I currently work in a stat which has a similar program, and grade inflation at the high school level has made incoming freshmen college classes ill-prepared. I am not opposed to the idea, it just needs to be tied to something else besides grades.