The Debt-for-Diploma Crunch
Several years ago, Tamara Draut and her husband were sitting in the middle of their living room floor, thinking about selling their CD collection to raise food money. They were struggling to repay $57,000 in student loans and $19,000 of credit-card debt.
With the memory of that harrowing time still fresh, Draut, now Director of the Economic Opportunity Program at the New York think tank Demos, has made it her mission to show the world that debt is dogging most young adults in the U.S. She piles up statistics to prove her point in her recent book Strapped: Why America's 20-and 30-Somethings Can't Get Ahead. (See BW Online, 02/06/06, "Up Against It At 25" for a review of her book, as well as a similarly themed volume, Anya Kamenetz' Generation Debt: Why Now Is a Terrible Time to Be Young.)
Will the younger generation be able to dig its way out? BusinessWeek Online reporter and Gen-Xer Sonja Ryst spoke with Draut about the challenges faced by this age group -- and some of the author's ideas to help fix things. Edited excerpts from their conversation follow:
What are the most serious challenges that young adults face today?
If you think of the path to adulthood as an obstacle course, the hurdles have gotten higher. We have a debt-for-diploma system that leaves the average college grad with tens of thousands in student loan debt. Then the new graduates hit the labor market, and yet their paychecks don't have the same punch.
Meanwhile in major metropolitan areas, rents are spiraling. When you get to the final hurdle of getting married and having a child and maybe buying your own home, you end up taking on more housing debt than the baby boomers had when they were our age. (see BW Online, 11/14/06, "Thirty and broke: The real price of a college education today").
Do you think things can get worse?
I think this is going to get worse. The cost of student loans will increase (see BW Online, 01/30/06, "Student Loans: Outflank The Hikes Ahead"), but there hasn't been a big increase in grants, and state tuitions haven't come down. Debt begets more debt. Since young people have to pay out of their paycheck for debts, in addition to all their other expenses, it leaves them without much cushion. If the car breaks down or they need a new suit for an interview, it's bought on credit.
What can we do to fix the situation?
We need to figure out how to help people move up in their fields. We need to end the debt-for-diploma system. The federal government needs to bring financial aid back. Our generation also needs to be more informed. Young people don't follow current affairs, and at the same time, they've been raised to believe that their inability to get ahead is their own fault.
Unlike previous generations, who believed and acted on the idea that the personal is political, this generation doesn't have that in their DNA. We need to realize that what's happening to us financially on an individual level is part of a larger issue in our economy and our society.
Have we made any progress yet?
There's a growing awareness that the current system isn't working. Economic mobility has declined, and people feel that the promise of America -- that if you work hard, you can get ahead –- is breaking. Young people turned out in record numbers to vote in the presidential elections in 2004. But there are a lot fewer of us than the older generations, so we have to turn out in much higher numbers to get our voices heard.
What can the baby boomers do to help their kids?
I think they are doing everything they can. Our parents are taking out mortgages to help pay for our college. They're supporting us longer than their parents had to support them. They're scaling back on their retirement for us. But a lot of baby boomer parents need to understand that the landscape has changed since they were young adults. It's harder for us to find good quality jobs and buy our first homes.
Most young people have the same goals and values that their parents had. They want a decent job, to send their kids to decent public schools, and to be able to save for their retirement. The American dream hasn't changed.