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For Graduates, Student Loans Turn Into an Albatross    [

    Hey Millennials, Debt Becomes You
    By Mischa Gaus
    In These Times

    Wednesday 17 May 2006

Twenty-somethings face a life of looming loans.

    The children of baby boomers are the new debtor class. Buckling under a heavy weight of debt, new workers step into an economy of low-wage and contingent work, a combination that makes the basics of adulthood increasingly unattainable.

    "We grew up in the Regan era where everything was fake, voodoo economics, and we're not seeing the connections," says Anya Kamenetz, author of Generation Debt: Why Now Is a Terrible Time to be Young. "I don't think we can continue treating people as disposable, not providing them with health care or the means to save."

    Educational debt is the most visible - but not the only - barrier to the well-being of the "millennial generation," roughly defined as Americans born after 1978. Every gate on the way to middle-class life is now tougher to unlock. Mortgages, health insurance expenses, car maintenance, child care and tax loads for two-income families have all ballooned.

    The accumulating stress on this generation is spilling over - not yet into the street, as it did in France in late March, but into some emerging forms of collective action.

    Owing 'Til You're Old and Gray

    The familiar combination of summer work, a part-time job during the school year and a little help from home doesn't begin to cover today's college costs. To afford one year at a public university, about $11,000, students earning minimum wage would have to work full-time year-round.

    "Students are in a pretty deep financial hole," says Luke Swarthout, higher education associate for the State PIRGs, which advocate on a variety of consumer, environmental and good-government issues. The Federal Reserve says graduates now shoulder three times more debt than a decade ago, after adjusting for inflation. Undergraduates now average almost $20,000 in debt, with a quarter taking on more than $25,000, according to Robert Shireman, director of the Project on Student Debt, a Berkeley-based think tank.

    "They end up still paying off their loans about the time when they're figuring out how to help with their own children's education," Shireman says. Some never emerge from their chasm of liabilities. The Supreme Court recently decided that retirees' Social Security checks can be garnished for old student debts, and changes to bankruptcy law last year make it nearly impossible to discharge educational loans.

    For students who approach their working lives seeking returns beyond pure remuneration, rising debt loads postpone basic decisions. Pam Morus, 29, spends about 10 percent of her income every month keeping up with $35,000 in student loans. A music therapist in Chicago, she received no grants during her five-year program at Eastern Michigan University. She'd like to purchase a home and start a family soon, but unless she finds a partner who brings in significantly more income, it is impossible. "I barely make enough money to pay my rent," she says.

    Even with a scholarship to American University's law school, Julia Graff, 28, started her career as a staff attorney at the Delaware ACLU last year facing $80,000 in debt. She anticipates paying lenders until she retires.

    Graff knew her ambition to pursue a nonprofit career meant she would forgo luxuries. But her debt-to-income ratio means trips to university dental clinics and taking on odd jobs like tutoring and translating Spanish.

    "I live paycheck to paycheck," Graff says. "Eventually I'm not going to want to live like I did when I was 18."

    And when lives don't match up with debt schedules, the strain can be severe. After finishing community college, Mandy Minor, 30, bounced around the University of South Florida before settling on business administration. She graduated five years ago, picking up $60,000 in consumer and student debt along with her diploma.

    Minor owns a small writing and design firm with her husband, and had a daughter five months ago. She pays $400 a month just to maintain her debt load, and has given up on buying a house. She worries how to provide health insurance once her daughter no longer qualifies for Florida's state-provided care.

    "It bothers me on a fundamental level that we even have to worry a little about how our daughter will receive medical care," she says. "It sickens me, and I know I'm not alone."

    Minor says some of her credit-card bills predate her college years. "I think sending high school students offers of credit should be illegal," she says.

    Taken together, such individual struggles illuminate the consequences of punitive political decisions. After all, student debt is intimately linked to government actions, like Congress' decision to boost interest rates to 6.8 percent for undergraduate Stafford loans, both new and old.

    Ensuring economic security is not solely an issue of self-interest for young people. Because higher education remains the most important factor for predicting economic success - and thus an opportunity to bridge inequality - it is a social justice concern as well.

    Last year, Yale students held a sit-in to demand financial aid reform. Within a week, they won a pledge from the university that families making less than $45,000 would no longer pay tuition. Yale was just catching up: The Ivies have embarked on a game of financial-aid chicken, fighting to see who can boost higher the amount families can earn before footing college costs. Currently, that figure stands at $50,000 at the University of Pennsylvania and $60,000 at Harvard.

    Struggling for a Living Wage

    Once they've graduated, however, what really staggers young people is a one-two punch: saddled with loans, students have a hard time finding a stable job that will actually support them. Steady productivity gains have been swallowed by capital, stagnating wages for young people. A Federal Reserve survey says the median net worth of households under 35 rose just 1.3 percent in the last decade after inflation.

    "Management has pulled a fast one," says Kamenetz. "They've gotten people to accept intangible benefits instead of old, actual benefits. We've all sort of followed this idea that we're all free agents." Flexibility and contingent labor have replaced the certainty of bargaining agreements and pensions.

    And contrary to media narratives about consumers run amok, foolish spending is not the root of most families' financial problems, writes Harvard Law professor Elizabeth Warren in her book, The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke. Credit card bills are higher now, but consumer spending between this generation and the last balances out - for instance, as more is spent on airline tickets, less is spent on tobacco.

    So where do young people turn to confront their economic plight? They are channeling some energy into workplace organizing. Retail workers at Borders and Starbucks have employed minority unionism, which initially doesn't seek contracts or bargaining units but builds a base of power through action by less than half the workers. Workers across the country trade information about corporate policies online, coordinating efforts between stores and sniping at overpaid executives.

    The underlying model is nothing new: Unions like United Farm Workers have used it for decades. But it could fit young people in hard-to-organize retail work, says Kate Bronfenbrenner, director of labor education research at Cornell University.

    "Young people don't feel as vulnerable as older workers because they're not going to be in this job forever," she says. "They are more willing to take risks."

    Minority unionism could challenge giant chain stores, she says, if unions commit to long campaigns and follow a social-unionism approach that brings the community behind the drive. The storybook example is the L.A. Justice for Janitors Campaign, which in the early '90s saw the flowering of a community-union partnership that placed moral concerns alongside economic ones. However, these are difficult, expensive campaigns in high-turnover jobs exceed the reach of any sympathetic union local. Critics see minority unionism as a half-cocked attempt to engage young workers.

    "We had industrial unions when we had industrial manufacturing. Now we have a new way of working that is much more short-term and mobile," says Sara Horowitz, president of Working Today, a New York-based advocacy group that provides insurance and other benefits for contingent - and often young - laborers. "Unions have evolved since the days of Moses and Exodus, and there's no reason to think they're not going to evolve again."

    Working Today counts 16,000 contingent workers in its ranks. Although its benefits are limited to workers in New York, it lobbies nationally to fill gaps like health care and retirement savings for the 30 percent of the workforce it estimates work independently.

    Millennials are also warming to another old tactic for addressing their grievances. They are increasingly appearing at the polls, with half of voters under 30 turning out in 2004, their largest showing in 14 years. Sustaining this interest, though, would require reversing a long-standing trend: Youth voting rates have been declining since 1972.

    The emerging generation's beliefs could offer an opportunity for reshaping the political discourse. Recent studies by the liberal New Politics Institute and a University of Maryland public policy center suggest millennials are more likely to identify as progressive than any other age group.

    But unless they find political avenues to channel their discontent, they may soon find themselves screaming in the streets like their French counterparts.

    "They have different lives than their parents did, a different set of economic opportunities," Horowitz says. "It's time for them to talk about what they need."

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    Mischa Gaus is a freelance writer based in Chicago.

 

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    For Graduates, Student Loans Turn Into an Albatross
    By Chris Gaylord
    The Christian Science Monitor

    Wednesday 17 May 2006

    Helen Lowery graduated from Boston University last Sunday with a bachelor's degree - and $22,000 in loans. But that $22,000 isn't stopping the psychology major: She plans to attend American University's Washington College of Law this fall, where she expects to borrow money again - this time, $120,000.

    "It's daunting," says Ms. Lowery. "I'll be putting myself into debt for 15 years after law school. It just bothers me that there are so few other options if I want a good education."

    Student-loan debt encumbers almost two-thirds of the Class of 2006, according to federal statistics. With tuition costs continuing to rise far faster than inflation and interest rates on federal student loans about to increase, the debt load for future graduates is set to become so heavy that it's likely to turn more students away from low-paying occupations like teaching.

    "Student debt is something that's grown very quickly and under the radar," says Anya Kamenetz, author of "Generation Debt," which characterizes student-loan debt at a tipping point. "The demand for a college degree is rising and the price of tuition is rising. So student loans are really the only path for a lot of students."

    Nationwide, the student-debt picture has fluctuated somewhat in the past decade and a half. The average student-loan debt doubled in the 1990s, but the situation improved after that, says College Board analyst Sandy Baum: Among recipients of bachelor of arts degrees, both the percentage of students taking out loans and the amount they borrowed dropped between 1999 and 2004, according to the College Board.

    Now, however, student indebtedness may be turning again for the worse, Ms. Baum says, although there is no comprehensive data for this year and last.

    "In the past few years, tuition prices rose a lot and Pell grants have not," she says, referring to the federal program that gives funds (which do not need to be paid back) to undergraduates based on financial need.

    For Zachary Pedigo, tuition costs made him drop out of the University of Texas at Arlington after only a year, and he later pulled out of the University of North Texas. He's still working to pay off a $10,000 student loan.

    "There are a lot of reasons I'm not in college right now, but the biggest is the cost," says Mr. Pedigo, who hopes to open a recording studio in Granbury, Texas, with friends. "College was just too expensive, and getting more expensive every semester. It just seemed like a lot of stress to make it through school just to be paying off debt until you're 30."

    For those who do graduate, the average loan debt was $17,600 in 2004 - $22,581 in the case of private colleges, according to the Center for Economic and Policy Research. Ms. Kamenetz says those averages are too close to the $23,000 maximum that undergraduates may borrow from the federal Stafford loan program over four years.

    "If students need to go over that maximum, it means they need to take out private loans with higher interest rates," she says. "That means they'll likely be paying more over a longer period of time, which slows down life even more."

    Of the three major variables affecting student debt - tuition costs, the job market, and interest rates - the latter has the gloomiest forecast, says Jacqueline King, director of the American Council on Education's Center for Policy Analysis.

    While tuition prices continue to rise, the acceleration slowed this year, Ms. King says, offering a positive projection for future college students. And the job market is relatively healthy, she says, opening up more doors for graduates. But interest rates will increase on July 1, when federal loan programs move from a variable rate system to a higher, fixed rate. Stafford loans will jump from the current 5.3 percent rate after graduation to 6.8 percent. PLUS loans, designed for parents, will rise from 6.1 percent interest to 8.5 percent.

    "The class of 2006 will not be affected by this increase, but the entering freshman class will borrow under this new rate," says King. "This could certainly have an effect on future graduates and how much they need to pay back once they are out of college."

    Interest rates on private loans can climb well over 12 percent. But lending companies, such as Sallie Mae, attract students by offering them far more money than the cap placed on the federal loan program, thus allowing many to attend more expensive schools.

    With hefty repayments in their future, however, many students, including Boston University graduate Lowery, are walking away from low-paying government, nonprofit, and teaching jobs.

    "I really want to work in advocacy law," she says, "but from a practical perspective that's not going to happen. I just won't be able to pay back my loans."

    Income for teachers is simply too low for many graduates, according to a report released last month by the State Public Interest Research Group. The study found that more than a third of borrowers who graduate from private, four-year colleges would face "unmanageable" debt on a starting teacher's salary, meaning they would need to set aside more than 8 percent of their pay to cover student loans.

    More than half of black and Latino graduates would fall into this level of "unmanageable" debt, set by the lending industry.

    Accumulating loan debt even pushes back many of life's milestones, according to a survey that Baum conducted in 2002 for Nellie Mae, a major student lender, which is now a subsidiary of Sallie Mae. The report found that 38 percent of graduates held off buying their first house because of student loans, 14 percent put off marriage, and 21 percent delayed having children.

    "We are the first society in history to take our brightest and start them out in debt," says Allan Carlson, president of the socially conservative Howard Center in Rockford, Ill. "That's just stupid public policy. We should encourage them to grow, not hold them back."

    Despite the uncertain forecast, college can be affordable if students and parents understand the potential pitfalls and plan wisely, Kamenetz says.

    "People need to approach college like they approach purchasing a car," she says. "Different people can afford different models. Don't be deterred from going to college, but students need to be smart shoppers."