Young Americans in debt

An article in early December 2004 in the Christian Science Monitor indicated recent college graduates may be "the most indebted generation of young Americans ever."

Why? Many of them indicate they are just "trying to get by." Those four words are telling.

The article indicated this is "the first generation to shoulder the costs of college primarily through interest-bearing loans rather than federal grants that don't have to be repaid."

These students are getting their degree, borrowing money to pay for the rising costs of tuition and related expenses. They are leaving college and entering the real world with their first job with enormous debt on their shoulders. The average graduate in 2002 owed $18,900 in student loans.

Many students attribute a big part of their problem to the first day of college. Credit card companies, many of which have agreements with the colleges to share a small percentage of the interest income with the schools, offer a prize and cards for 0 percent interest. The fine print limited that offer to the first month or so, then the rate often exceeds 18 percent. Students sign up because "it's free."

Also, they want to maintain the same lifestyle they had at home before going off to school --- cell phones, premium cable TV packages and modems for their computers.

Making the situation a little worse, students want the best things when they leave school. Graduates have a sense of freedom and they overspend. Many still can't distinguish between "wants and needs." By the time reality hits, some students realize how easy it was to walk into a retail store, sign up for a card and walk out with the products they want.

Another source said two-thirds of the students graduate with loans that average $16,928, more than double the amount just eight years ago.

According to a Sallie Mae study, the average credit card debt held by college students rose to $2,748 last year. A third of all college students now own more than four cards.

Many graduates are enjoying a pretty fair salary in their first real-world job. BUT they can't get ahead because they are making significant payments on their student loans, an obligation which will be with them for 15 to 20 years!

Some of them get discouraged and consider bankruptcy. They think it doesn't carry the stigma it used to. It's no surprise then that Americans between 25 and 34 have the highest rate of bankruptcy, only below the 35-to-44 age group.

Deborah McNaughton, president of the Professional Credit Counselors counsels strongly against bankruptcy. She says bankruptcy stays on a credit report for 10 years. It is possible to re-establish credit with secure credit cards with high interest rates. "But such debt can be perilous. If you have a $2,000 balance and you only make minimum payments, with no new charges, it will take 16 and a half years to pay it off. That adds up to more than $2,500 in interest!"

Take note of the following:

20 - Somethings in the Red
$16,928 average cumulative federal-student loan debt*

$ 2,748 average student credit-card debt

64 --- percent of students who take out federal student loans

32 --- percent of student who have four or more credit cards

10 --- percentage of students who owe more than $7,000 on credit cards

Source: Sallie Mae, State Public Interest Research Groups "The Burden of Borrowing" *1999 - 2000*