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Thirty and broke

There are all kinds of ways to describe today's 30-year-olds. But what may really come to distinguish them is that they could be the most indebted generation in modern history.
/ Source: BusinessWeek Online

Paige Nichols has a certain stoicism about her, which has helped her overcome disappointments big and small. She was born in Oklahoma City in 1975, a time of plenty for her family. Her father was prospering as a commodities trader, and he liked to spend his money. Paige would turn out to be the same way. But by the time she entered college in 1993, their financial situation had become, she says, considerably more "volatile." Her parents had been able to pay for the education of her two sisters, 11 and 13 years older than she, but told Paige they couldn't do the same for her.

She finished up at the University of Tulsa in 1997 with a business degree and $20,000 in student loans, which makes her, by official reckoning anyway, a typical graduate. She is now paying off her loans, $300 a month; at that rate it will take her until she's about 50. "Twenty thousand isn't even that much, but it feels hefty," she says. "I'm not making any headway."

Like many who emerged from adolescence amid the promise of the late 1990s, Paige never imagined that money would be the issue upon which crucial decisions in her life would turn. But it is. She has been fascinated with forensic psychology ever since reading a book in college about a woman who studied serial killers, and she was accepted into a master's degree program at the Chicago School of Professional Psychology in 2004. Before long she reconsidered. "I dream big," she says, "then reality seeps in." Paige would have had to borrow at least $32,000, which seemed like "way too much to think about," especially since afterward she might earn less than she would in the corporate world. "I could not justify putting myself in that financial jeopardy," she says. "But it could have been my life's passion."

Paige belongs to the first generation that came of age with the Internet, grew up marketed to at every turn, is too young to remember the Vietnam War, Watergate, or the Beatles: There are all kinds of ways to describe today's 30-year-olds. But what may really come to distinguish them is that they could be the most indebted generation in modern history.

Two new economic realities are at work. Many had to borrow serious money to attend colleges that are ever more costly. And as soon as they entered school, they were offered credit cards; by 30 many have accumulated thousands of dollars of that very expensive debt, too. Imprudent choices sometimes have compounded their troubles. The consequences can be profound: Many of those 30-year-olds feeling unduly burdened by their financial obligations have had to make compromises on some of life's vital decisions.

Paige is a typical graduate not only because of the amount of her student loan debt but also because of the way in which her attitude toward it has shifted. In those early years, she felt unprepared for life on her own and had what she calls an immature attitude toward money. She paid as little as she could on her student loans, about $50 a month, while working in Tulsa as an accountant at Deloitte & Touche and later at WilTel Communications Group Inc. as a product manager. She could have handled making higher payments, but that would have meant scrimping. Paige, though, had long ago learned the prevailing cultural language of brand names and status symbols. Living in reduced circumstances simply didn't correspond with what she thought she understood about being an adult. "My lifestyle was a little out of whack," she says. "I expected to be able to live the way my parents raised me."

Now, after two turbulent years in Chicago, Paige is happily employed as a product manager for a Web site called ShopLocal LLC, earning $65,000 a year. She's hoping to buy a place of her own before she's 35 years old, maybe invest in real estate with a group of friends, start saving more money for retirement. "We were supposed to be the slacker generation," she says, "but I think we grew out of it."

No guarantees
In myriad ways, the economics of being 30 have changed for the worse. A college degree is now the minimum required to find a place in the working world that affords some job satisfaction and material comfort. But it doesn't offer protection against turmoil in the labor market, as it once did. Nor does it guarantee such things as health insurance or a retirement plan. And real earnings for college graduates without an advanced degree have fallen four years in a row, for the first time since the 1970s.

The cost of higher education, however, has increased so dramatically in the past decade and a half — up by 63 percent at public schools and 47 percent at private — that more students have to borrow tens of thousands of dollars to attend, ensuring that many of them are paying off those loans well into their 40s. The median debt-to-income ratio now is about 8 percent. But fully one-quarter of graduates are paying more than 12 percent of their income, a level many financial experts regard as worryingly high. That burden will only grow: Interest rates on student loans are going up for the first time in five years.

Their financial obligations leave them particularly vulnerable to life's discontents. Nellie Mae, the student lender, found that 55 percent of all borrowers felt hampered by debt in some way in 2002: They changed career plans, gave up on graduate school, put off buying a home, getting married, or having kids. "This is the first generation who won't necessarily do better than their parents," says Tamara Draut, director of the economic opportunity program at Demos, a research and advocacy organization in New York. "They've been told: 'Apply yourself. You'll get a job, a home.' For many young people that's not the case."

Turning 30 has long had iconic status in American society: It is associated with a seriousness of purpose, a willingness to plan for what still might be an indistinct future. But student loan debt can diminish that sense of stability. Michelle Chin, a scrappy, confident, 31-year-old graphic designer who lives in East Los Angeles, says what bothers her most about her financial situation is that she can't save much money. She graduated from Art Center College of Design in Pasadena, Calif., seven years ago and now has $42,000 in student loans and $7,000 in credit-card debt. As Michelle says, "I'd like to hold on to more of my cash, but that almost feels frivolous."

Thirty years ago, when many of their parents attended school, it was entirely possible to get through college with modest family savings and steady work during the summers. Since the mid-1980s, though, tuition has been growing far faster than many families can afford. The price of public colleges, where about 80 percent of all students are enrolled, increased 28 percent in the past five years alone, far more than in any five-year period since 1975. At private colleges, the total cost increased 17 percent. Those figures, it should be noted, already take inflation into account. At the same time, outright grants have been shrinking as a proportion of total financial aid. "The costs of education are moving from the government to families, and in families from parents to kids," says Melanie E. Corrigan, associate director of national initiatives and analysis at the American Council on Education in Washington.

A rite of passage
These trends have intersected before — paying off college loans has never been easy, and earlier generations have had to contend with weak job markets — but they are felt more keenly today. Almost two-thirds of students have to borrow money to get through school; as many as one-quarter may be accumulating credit-card debt to help pay for tuition. The median debt for college graduates in 2004 was $15,162, an increase of 66.5 percent since 1993. That may not seem like a crippling sum, but plenty of individuals owe much more. Back in 1993, only 4.2 percent of graduates had loans exceeding $25,000. A decade later, 17 percent did.

Today's 30-year-olds are also the first generation for whom having a credit card was a rite of passage. Most of their parents couldn't get a credit card until well after graduation. But beginning in the early 1990s, students have been bombarded by tempting offers at a time when they were just scraping by. For those whose financial education had scarcely begun, it seemed like free money: Spend a couple of hundred dollars and only pay the minimum balance of $10 a month. So students used their cards to buy computers, clothes, gas, textbooks, and sometimes even to pay for tuition. Living with debt has become perfectly acceptable: Last year 76 percent of college students had credit cards and their average debt was $2,169. "We wink at the magical thinking that credit-card companies encourage us to engage in," says Darryl Dahlheimer, a program manager at Lutheran Social Service Financial Counseling in Minneapolis. "The bitter 30-year-olds are the ones who are still paying off the pizza they ate when they were 20."

When these students start out in the working world, many use their credit cards to fund a richer lifestyle than they can afford, get by between jobs, or cover emergency expenses. The average credit-card debt among 25-to-34-year-olds was $5,200 in 2004, 98 percent higher than in 1992. "Young people are taking on a level of debt that was never possible for an earlier generation because it's not based on income," says Robert D. Manning, author of "Credit Card Nation" and professor of finance at Rochester Institute of Technology. "This is a generation that has a razor-thin margin of error."

Few would argue that building up credit-card debt is in anyone's best interest. Most economists, though, believe that borrowing $20,000 or so for a degree that, in the past anyway, would enable graduates to earn $1 million more over their lifetime is a pretty smart investment. But for those who have to borrow considerably more, or come from families that can't slip them a couple of thousand in a pinch, student-loan debt can be a real burden. "We're a society that values freedom of choice, but debt can restrict and narrow choices," says Gaston Caperton, president of the College Board and former governor of West Virginia. The real price of a college education may have to be calculated by different means altogether.

Reality check
It took William R. Love a full decade to get through college, mostly because he kept quitting to make what money he could at places like Burger King and Friendly's Ice Cream. Then, when he finally graduated from Rochester Institute of Technology in 2002, he couldn't find a decent job. His wife, Jessica, pressured him to take whatever he could find, and eventually he did. But he begrudged her; she was disappointed in him. A year later their marriage collapsed.

Now, at age 31, he is about to finish his master's degree in business at RIT. William is charming and highly capable and has lots of ideas about what he might do. He thought of moving to Chicago, a city he regards as full of promise. But he's realizing that to secure the $70,000-a-year job he hopes for, he has to be willing to go pretty much anywhere. He would, though, like to stay within driving distance of his parents, who live in rural Pennsylvania; money for plane tickets home may be hard to come by. William knows he will have to live frugally for years so that he can pay off the $71,000 he owes in student loans and the $40,000 balance on his credit cards.

William lives with his girlfriend, Savita Thakur, who is a 28-year-old technical writer and part-time student in the same MBA program. But he won't be in a position to get married, have children, or buy a house for a long, long while. "I have to meet my financial goals to pursue my career properly. I can't take on more debt and do that," he says. In this, he is not alone: Fourteen percent of graduates said in 2002 that they had delayed marriage because of their loan obligations, compared with 9 percent in 1987.

William met Jessica at Marywood University in Scranton, Pa., where he completed his freshman year and then dropped out. After she graduated in 1996, they moved to Rochester, so that she could take a job as an auditor for a bank there. When they were feeling pretty comfortable financially, he returned to school and this time got through his bachelor's degree in management information systems in three years. But in Rochester, long dependent on such companies as Eastman Kodak Co. and Xerox Corp., there were few technology jobs available back in the spring of 2002. By the fall, he was working on the sales floor at CompUSA, and at Sears Roebuck & Co., too.

In February, William found a job at Paychex Inc., the payroll processing company; it was only temporary, but at least he could put his education to use. When his two-month contract was extended, William thought he had a good chance of being hired for a permanent position. So in June he enrolled in the MBA program as a part-time student. Halfway through his second quarter, he was let go from Paychex and couldn't find another job. In November, he took a leave of absence from school. "The friction returned to our marriage," he says. "School was cutting into the time I had to look for work."

William parted from his wife a month later with two credit cards, $27,000 in college loans, and a car that Jessica signed over to him. He used his unemployment checks to pay the rent on a studio apartment. He lived off his credit cards, relying on a small sum that his extended family gave him to cover the minimum balance each month. He returned to school and bought a $3,200 computer system, then a $1,500 digital camera. He lost 40 pounds from the stress of his divorce and bought all new clothes. At the time, this hyperconsumption seemed normal to William, as it would to many others of his age. "Our culture has trained this generation to believe that success is measured by acquisition," says Nathan Dungan, the author of "Prodigal Sons and Material Girls: How Not to be Your Child's ATM."

In the summer of 2004, William's life began to unravel. The crises that often discourage young adults were made more intense by his financial troubles. An uncle who had been everything William admired died from cancer. He began doing poorly in school and withdrew from two classes. He was approaching the spending limits on his credit cards. "I knew if I didn't catch myself in time, I would be headed to bankruptcy," he says.

Savita, his family, and an adviser at school helped him cope with his personal losses. By January, William had cut back on his spending and become meticulous about paying his bills on time. His grades improved. He began thinking about how he could manage his finances once he entered the working world. "I've learned my lesson," he says. "There's a real disconnect between what students today think they can have after graduation and reality."

'Sense of betrayal'
This is a generation with an unusual sense of entitlement. They were brought up as consumers, comfortable with prosperity, certain of their eventual success. For those who graduated when they were in their early 20s, America was at its most exuberant. Then came the recession, September 11, a slow economic recovery, growing job insecurity, pressure all around. "A college education doesn't protect you from the vicissitudes of global competition," says Jared Bernstein, director of the living standards program at the Economic Policy Institute in Washington. Real earnings for full-time workers between the ages of 25 and 34 who have only a bachelor's degree have, in fact, dropped by almost 10 percent since 2000, by 5 percent in 2004 alone. This exaggerates the burden of their debt. For many 30-year-olds, establishing themselves takes longer and is more complicated than they thought it would be. "It's so much more difficult to achieve the adult milestones today than it was 30 years ago," says Draut of the think tank Demos. "There is some sense of betrayal."

Cristina García Gamboa, who just turned 30, is articulate and energetic, someone who while reading Madeleine Albright's biography will ask a friend to recommend books on European history for background. She was an exceptional student and received scholarships that nearly covered her first three years at Smith College. During vacations, her uncle gave her frequent-flier miles so she could return to Houston, where her mother insisted Cristina work at the grocery store he managed. All of her summer internships had to pay: After her junior year, she worked at Lockheed Martin Corp. during the day and Toys 'R' Us at night.

From the beginning, Cristina's mother, Bertha, didn't see the difference between a diploma from Smith and the community college where most of Cristina's high school classmates went. Her philosophy was simple: Don't pay when you don't have to. Bertha, who moved to Texas from Mexico when she was 17, wouldn't use the term return on investment, as Cristina does, but that's how she looks at higher education. So after Cristina graduated in May, 1998, with a double major in Latin American studies and economics, it was a scandal that she returned home $21,000 in debt and unemployed.

Cristina quickly accepted a $42,000-a-year position as a Latin America analyst with Motorola Inc. in Miami, only to be laid off seven months later when the company reduced its investment in the region. She moved back to Houston, worked at a public relations firm with a Hispanic focus, and lived with her parents. Her fiancé, Manuel Gamboa, had graduated from Massachusetts Institute of Technology in 1997 with about $27,000 in student-loan debt and $3,000 in credit-card debt, and he was living with his family in Chicago while working at Navistar International as a design engineer. By May, 2000, they had saved the $25,000 they needed to host a wedding party for 400 guests.

Cristina and Manuel began their married life in Houston, where they could afford to buy a house, instead of Chicago, where they couldn't. Their $51,000 debt weighed on them, though, and they agreed to cut it in half before they borrowed more to buy a place. They got it down to $26,000 in a year. At the end of 2001 they purchased a $112,000 house eight miles outside of Houston with a $4,000 downpayment. It's a modest place, says Cristina, and with their salaries they could have afforded something "more grand," but they didn't even look, she says, because of their student loan debt.

If Cristina's mother had been planning their lives, that's when they would have started a family. Instead, Cristina enrolled in a 15-month master's degree program in marketing at Northwestern University's Medill School of Journalism in 2003 and Manuel entered the MBA program at the University of Texas at Austin (no more private schools for him) the year after. When he finishes in May, 2006, they will have accumulated an additional $100,000 in debt. They consider graduate degrees a necessity in the business world, yet paying for them may well constrain them in important ways in the years to come.

Feeling the pinch
Cristina's first job offer after Medill was to join SBC Communications' leadership development program at company headquarters in San Antonio. That's about 80 miles from Austin, which made it a less-than-ideal proposition. But Cristina was wary of being unemployed. "It was frightening to owe $50,000 when we first got married. And now we owe more," she says. "We owe more in student loans than on our house. You convince yourself that it's good debt." She started at SBC in mid-January.

Cristina and Manuel plan on paying $1,256 a month on their loans for a decade, which is manageable if they live in an affordable city and both work. That makes the prospect of having children anytime soon not too "realistic," as Cristina puts it. Their debt has put them in a bit of a quandary. They want one of them to stay home with the kids for several years. Cristina and Manuel had many ambitions when they decided to go to graduate school: Among them was to secure positions that provided enough flexibility, financial and otherwise, for their family. But that time seems further off than they hoped.

These days, Cristina is adjusting to life in a small town mid-way between San Antonio and Austin, a long commute in a noisy car that needs new tires, not being able to help their family as much as they would like, her mom calling her office at night and saying: "You're still there. I thought you went back to school for a better job." It's not quite what she saw for herself at this age. "I thought I would be living it up at 29," she says.