Young People Leave College with a Mostly Undeserved Handicap

That would be their student loan balances:

This generation of twentysomethings is straining under the weight of college loans and other debt, a crushing load that separates it from every previous generation.

Nearly two-thirds carry some debt, and those with debt have taken on more in the past five years, according to an analysis of the credit records of 3 million twentysomethings 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.

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.

High debt loads are causing anxiety, too. A poll of twentysomethings by USA TODAY and the National Endowment for Financial Education (NEFE) found 60% feel they’re facing tougher financial pressures than young people did in previous generations. And 30% say they worry frequently about their debt.

….. 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.)

….. 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.

I said in the title that all of this is “mostly undeserved.”

Stay with me on this. I know that student loans have low rates, I know that they don’t require any repayments while in school. I know that many of them don’t even accrue interest while the student is in school. I realize that kids should know better than to charge up their cards. Yeah, yeah, yeah, yeah.

But all of that doesn’t change the fact that the amounts they have to borrow to get through college are outrageous. Yes, it’s to the point that many MUST borrow, or decide to take a ridiculously long time to get through school. In fact, the financial aid system is so screwed up that once a student’s earnings are above a certain minimal level (about $2,700, last time I checked), 50% of any additional earnings is assumed to be available to pay for college and reduces the supposed “need” for financal aid. That’s nice in theory, but the practical effect is to convince students to borrow more instead of to work more.

But I digress. As any economist would have predicted, once the federal financial-aid system went into high gear in the early 1970s, college costs began rising at twice the rate of inflation. They’ve never stopped doing so. Cost increases have been further aided and abetted by the scheme of income-tax credits and deductions that went into effect in the late 1990s. Four tuition-only years at the University of Freaking Cincinnati now costs over $37,000. The school, like almost every other, simply ratchets up its spending and its tuition by 5% or more every year (two years ago the increase was about 9%), with no apparent interest in cost control, rationalization of underused deparments, and any number of other measures that private-sector companies have to wrestle with constantly.

And then ….. (here is where the steam rises out of the ears) the Baby-Boom generation that is pushing these costs onto the Twentysomethings pats itself on the back for making “affordable” loans available, does nothing but shrug its shoulders about a product whose cost in real terms is more than double what is was 25 years ago (with lower quality, many would credibly argue; data source is The College Board’s 2006-2007 “Trends in College Pricing” [large PDF, go to Section 2, Page 7]), and then has the nerve to call today’s grads “The Entitlement Generation.” Oh, and it’s the same Boomer generation now running the credit-card companies who are passing out cards like candy to kids who have never been taught basic personal finance (because the elementary- and secondary-education system, also run by Boomers, doesn’t think it’s as important as _________________ [you fill in the blank]) to people whose income ranges and ability to repay on their own ranges from “zero” to “very little.”

I do believe that in the case of financing education, today’s younger people have been given a raw deal by “The Real Entitlement Generation.” Solutions? Here are some to consider, for starters — Forget about residential universities; have specialties that don’t require four years but lead to a legitimate degree; more distance learning; more school choice and more rigor at the el-ed and secondary levels. I’m open to others.

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A SHAMELESS PLUG: Unfortunately, I can’t solve the inequities today’s Twentysomethings face. But I can offer them an affordable way to see where they stand and to figure out what they can do about it. If you’re in a bind or know someone who is, please consider signing up for CYMnow.com.