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Going Broke: Why 20-somethings are sinking in a sea of debt

By Farnoosh Torabi

6:12 PM EDT, June 15, 2007

Debt is a four-letter word, and for millions of young Americans, it's an all-too familiar term.

Between what they borrow to get through college and grad school, what they have to spend on rent and health care, and what they put on plastic to keep up with their friends, this generation is shaping up to be a generation of debtors.

The most recent statistics from the College Board show undergraduates attending a for-profit private school, like Columbia University, pile on an average $24,200 in student loans. At a private, non-profit, the average student loan is $16,000, and at a public university, $10,600.

In 2006-2007, attending a private four-year college will for the first time top $30,000 a year, $30,367 to be exact a 35 percent climb from five years ago, according to the CollegeBoard and a more than 450 percent jump from 20 years ago, says the Department of Education, light years ahead of the pace of inflation.

Meantime, federal student aid has dropped, remaining stagnant in recent years. "There's been a big shift in the way we help people afford college," says Tamara Draut, financial author of 'Strapped' and a Director at Demos, a public policy institute. For example, the maximum Pell Grant contribution, created to benefit the lowest-income students, has remained steady over the past several years at around $4,000. "Loan-based aid is the bulk of the [financial] aid today," says Draut.

And it's not as if skipping college is any solution. The most recent census research shows that, on average, a person with a bachelor's degree earns roughly $51,500 a year versus just $28,600 annually for someone with only a high school diploma. "It's not only about money. You're talking about a quality of life," says Ann Crane, a financial specialist with National Financial Network in New York. "College kids do better and probably feel more satisfied and have better self-esteem."

So, this four-letter-word is not only about high-costs; it really is a curse.

But student loans are just one variable in today's young debt equation. The other chunk stems from credit cards. Researchers at Nellie Mae found the average college senior carries credit-card debt totaling $2,800, and it's only likely to balloon once they enter the "real world," especially if it that real world is New York City.

Here, the cost of living is higher than any other city in the country, according to a 2005 study by Mercer Human Resource Consulting. Eating out, entertainment and shopping cost a premium, and those bills usually get paid for with plastic. "We live in a very seductive environment where you're constantly being bombarded with things to buy," says Crane.

Plus, says Robert Brusca of Fact and Opinion Economics, "Back in the 1970s, the interest paid on credit card debt was tax deductible." That allowance was abolished in 1986, as the central bank aimed at making monetary policy more productive, says Brusca.

Not to forget, rent costs a premium, taking an enormous bite out of disposable income. "At minimum, 30-40 percent of their income goes to rent," says city real estate expert Kathy Braddock of Braddock + Purcell. Also tugging at their wallets is the rising cost of health care and a retirement that's likely to be much longer and more expensive, with little to no social security or pension. "Not only are they coming to the real world with more on their back; their future is more in their hands," says Gary Schatksy, a financial planner in New York and founder of objectiveadvice.com.

Personal finance experts cite a heightened exposure to material goodies and the transparencies of living in a cyber-connected world as part of the reason for ever-increasing credit-card debt. "Today, the desire to keep up with the guy or gal in the next cubicle is amplified because of ourlimitless access to information," says Carmen Wong Ulrich, author of 'Generation Debt.' Between the web and MTV, reality programming, celebrity tabloids and Hollywood, young adults want more because they see more, she says.

There's a sense of self-entitlement that goes along with wanting it all, too. After all, as a new survey by researchers at San Diego State University put it: Selfishness is on the rise among college students. That institution's Narcissistic Personality Inventory, or NPI, showed that in 2006, about two-thirds of surveyed college students had above-average scores -- a 30 percent increase since 1982.

The journey to a debt-free life will take considerable time. The JumpStart Coalition says that many young adults who borrow money for college today will celebrate their 50th birthdays before their negative balances disappear.

But the good news is that more people are trying to ditch their debt early on. And experts say the ultimate path to recovery must involve a collective effort of individuals, lending institutions and the federal government. Otherwise, says Draut, "this generation is the first on track to not do as well as their parents."