A stunning 111,000 adults age 25 and under will file for bankruptcy this year, according to a projection by Harvard University bankruptcy expert Elizabeth Warren.
Meanwhile, average credit card debt among the under-25 set more than doubled in the decade leading up to 2001 and has been rising ever since.
Throw in the group’s penchant for spending on big-ticket electronics, rising college costs, an uncertain job market and dim long-term prospects for Social Security and it’s little wonder Generation Y was dubbed Generation Broke in an October report for public policy research group Demos. “This is the first generation to truly shoulder the cost of education through loans rather than grants,” said Tamara Draut, director of economic opportunity programs for New York-based Demos. “And the problem with a debt-for-diploma system is that it discourages a lot of people from finishing or even enrolling in four-year colleges.”
Grants accounted for 52 percent of federal student aid in 1980, according to the National Center for Public Policy and Higher Education. By 2000, that figure had fallen to 41 percent. By 2000, more than 40 percent of the highest-income quartile were borrowing money for education, up from less than 20 percent a decade earlier.
For those that roll the dice and lose–tallying up debt but not landing the higher income needed to pay it off–it can be devastating.
“Young people come out of bankruptcy emotionally wrenched,” said Cate Williams, vice president for education for Money Management International, a Texas-based consumer credit counseling agency. “They feel they’ve sold their soul early on and now everything they do, from applying for auto insurance to renting, will be marked by this.”
Leslie Grooms hasn’t let the debt horror stories stop her from ringing up student loans.
The 22-year-old Chicago State University junior has amassed $25,000 in college loans and roughly another $1,000 in credit card debt to get this far into her bachelor’s degree in accounting. By graduation, depending on whether she wins some grant money, she estimates she’ll owe a cool $30,000.
“I don’t think about the bills because I’d get discouraged if I did,” said Grooms, who hopes to become a certified public accountant. She wants to join a big firm that will help her go on to graduate school.
For people like Grooms, five-figure debt didn’t build up because they loaded up on iPods and late-night pizzas. With declining outright college grants, taking on debt was the only way to get on a path to a professional career.
Lisa Sacks is one of the lucky ones. The 22-year-old graduated with an economics degree from Northwestern University last spring with no debt–her pricey private education was a gift from her parents.
Now Sacks works as a program manager for Money Savvy Generation, a Lake Bluff company that sells piggy banks and consumer finance education tools to the public and to schools and organizations.
While she loves the work, Sacks found the job market very difficult, and she worries about her long-term financial security. So, like a growing number of her friends, she’s living with her parents.
“It wasn’t like I had hundreds of job offers. I’m lucky I even had a few choices. A year ago, I wouldn’t have said I’d do this,” she said of her decision to move back home. “But it made sense because I can be saving and it’s close to where I work.”
NumberCrunch
T. Rowe Price, the investment firm with investment calculators on its Web site, is working on a new one designed especially for twentysomethings. An interactive calculator won’t be ready for about a year, but the firm already has begun compiling benchmarks.
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Edited by Cara DiPasquale (cdipasquale@tribune.com) and alBerto Trevino (atrevino@tribune.com)
