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New college grads face crash course in debt

By Seth SternStaff writer of The Christian Science Monitor / May 13, 2002

Christine Brown's romance with plastic began three years ago with just a single department-store charge card used to buy a couple of bathing suits.

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Then came the college textbooks, drinks with friends, and more frequent outings to the mall.

By the time Ms. Brown graduates from the American Intercontinental University in Buckshead, Ga., next year, she will have racked up some $8,000 in credit-card debt, piled on top of $20,000 in student loans.

"It's a big burden," admits Brown.

That combination of growing student loans and ballooning credit-card balances is shackling a generation of 20-somethings just as they should be enjoying their first years of independence.

And as recent college graduates use easy credit as a crutch to maintain lifestyles during a recession, the number of young people turning to credit counselors or bankruptcy for some relief continues to rise.

The financial challenge for recent grads keeps mounting. Two-thirds of college students graduate with loans that average $16,928 – more than double the amount of just eight years ago.

When they start their first jobs, about 40 percent of those students find the debt unmanageable, meaning it eats up more than 8 percent of their monthly income, a study by the State PIRGs (Public Interest Research Groups) Higher Education Project found.

Confusing desires with needs?

Added on top: credit-card debts racked up in college that keep growing in the first years after college. The average credit-card debt held by college students rose to $2,748 last year and a third of all college students now own more than four cards, a Sallie Mae study found.

And it's not just textbooks being charged. Ms. Brown, for example, bought everything – even gas for her car – on her seven credit cards.

"It's very easy to walk into a store and ... write up an application and charge it," Brown says.

Credit counselors say that impulse toward instant gratification helps fuel debt among those just entering the workforce. "They want the best things when they start out," says Laura Ritcey, a certified consumer-credit counselor in Toccoa, Ga. "They have a sense of freedom, and they overspend."

That spending habit that often develops in college, where students are thrown together with classmates from vastly different socioeconomic backgrounds, says Rochester Institute of Technology Prof. Robert Manning, author of "Credit Card Nation."

Ms. Ritcey says it's hard to to persuade young clients to give up perks they've come to view as necessities. There are cellphones, premium cable packages, and cable modems for the computer. "They need to be able to distinguish between a want and a need," Ritcey says.

Jason Anthony and Karl Cluck, who wrote "Debt-Free by 30: Practical Advice for the Young, Broke & Upwardly Mobile," advise squeezing more money for paying off debt by cutting back on small items that add up, such as frequent ATM fees, $3 coffees, and taxi rides in cities that have good public transportation.

"It's 80 percent of the problem," says Mr. Anthony. "Twenty-somethings don't have the big bills yet, and can reward themselves with the little things that accumulate and slip under the radar."

Bankruptcy loses its stigma

Often, small measures aren't enough. Increasingly, young debtors are looking toward bankruptcy as a quick solution. Some 100,000 debtors in their 20s filed for bankruptcy last year alone, according to Harvard University's Consumer Bankruptcy Project.

Bankruptcy has lost much of its stigma among younger people, says John Waskin, executive director of "It's seen as a real easy fix," he says.

In reality, experts say, bankruptcy actually can ultimately do more harm than good for young debtors with relatively little debt. Bankruptcy stains credit records for a decade. As a result, higher interest rates on mortgages or car loans can far exceed the amount of debt eliminated by the bankruptcy declaration.