Cover Story: Their cost to bear

Michael Phillips raised his hand and shouted, “$310!”</
He stood close to the makeshift stage at Sutra Lounge in Midtown. A first-year Emory law student with dark auburn hair and freckles, he was decked out in a sleek black suit and tie. On stage, a leggy blonde named Kristi giggled nervously as Phillips and several other men barked out bids to win a date for a charity auction.

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A friend turned to him.</
“Dude, what are you doing?” he asked. “None of us can afford to pay that much for her.”</
“I’m going to be a lawyer when I grow up,” Phillips, 24, replied as the emcee announced him as the winner. “Lawyer Michael 10 years from now is going to say that this was worth it.”</
People in the crowded club stared at him. Some cheered and others patted him on the back. He’d already purchased three other dates that evening to benefit victims of a Pakistani earthquake. He felt like the richest man in the room.</
But his friend was right — Phillips couldn’t afford the dates. He was living on student loans and credit cards. It’s just that it felt like free money. Paying back that debt seemed abstract, something to deal with sometime in the future.</
The next day Phillips wrote a check for $700 for the four dates he’d won. He never went on any of them because he didn’t have a car, and he was too embarrassed to ask the leggy blonde to pick him up. Sure, that night was expensive compared to the $50 he regularly dropped at a bar on the weekends. But he chalked it up to good fun for a good cause.</
After all, for Phillips, it was a drop in the bucket. What does $700 matter when you’re going to be $220,000 in debt?</
Phillips and his contemporaries will enter the adult world with the kind of economic baggage no previous generation has ever faced. They are part of what has become known as “Generation Me.” They’ve grown up with a sense of entitlement that’s set them up for failure as adults. And they’ve been indulged with a “gotta have it now” consumer appetite that’s translated into an unprecedented amount of debt before they’re even out of school.</
At the same time, the traditional safety net has been pulled out from under them: Student loans and tuition are more expensive, and banks and credit card companies tease them with more ways to go into debt.</
More than 50 percent of today’s students take out loans to pay for college. According to the Consumer Credit Counseling Service of Greater Atlanta, they graduate with an average student loan debt of $20,000. And students, like Phillips, typically owe $100,000 for medical or law programs.</
“College is just so much more money,” says Clark Howard, the WSB-AM (750) consumer talk show host. “I went to college back with the dinosaurs and my tuition for an entire year was $2,400.”</
In the 1970s, when Howard attended school, student loans were virtually unheard of because federal grants covered 84 percent of a student’s tuition; today, they cover just 39 percent. In the early 1980s, 52 percent of all federal undergraduate student aid came in grants and 45 percent in loans. And by the end of the 1990s, notes Anya Kamenetz in Generation Debt: Why Now Is a Terrible Time to Be Young, the numbers were more than flipped: Loans made up 58 percent of financial aid and grants only 41 percent.</
Although Georgia touts its much-heralded HOPE scholarship, it only helps students with a B average or higher. And a recent report by the National Center for Public Policy and Higher Education gave Georgia an “F” on the affordability of its colleges because the state does so little to help its neediest students. In 1995, the state removed an income cap, allowing wealthier students to get HOPE scholarships even though they didn’t need, or sometimes want, the free ride. Instead, many students want the best, private-school educations, meaning they’d rather start out in the red than settle for a public education.</
Howard sees that attitude himself, with his 17-year-old daughter. “I told her I will pay the equivalent of in-state tuition, room and board for a Georgia state college,” he says. “But she doesn’t seem to want to go to a state school. I think she’s in denial.”</
On top of student loans, Generation Me has racked up debt on plastic. The average student carries three to six credit cards and owes between $3,000 and $9,000.</
“Credit card companies want to give cards to the college kids because they’re the most profitable customer,” Howard says. “If they get behind [in payments], most college students get bailed out by their parents so there’s almost no risk to the credit card companies.”</
Colleges themselves have exacerbated the problem. Administrators allow credit card companies to hound fresh-faced college students on campus because the school often gets campus activities underwritten by credit card companies in exchange for access to their students.</
But the problem isn’t just financial pitfalls. It’s also a need for instant gratification. Since birth, Generation Me has been spoon-fed self-esteem and told they could be whoever they wanted to be, says Jean Twenge, a San Diego State University psychology professor and author of Generation Me: Why Today’s Young Americans Are More Confident, Assertive, Entitled — and More Miserable Than Ever Before. She adds that they don’t want to earn it — they expect it to be handed to them. A 2002 survey conducted by Twenge and professors at the University of Georgia found that young people mostly agreed with the traditionally narcissistic statements “I am a special person” and “I can live my life any way I want to.” The self-esteem that’s seemingly made young people more confident and ambitious has crossed over into entitlement, and caused them to have unrealistic expectations — which they often fulfill through debt.</
“Materialism is the most obvious outcome of a straightforward, practical focus on the self: you want more things for yourself,” Twenge writes. “You feel entitled to get the best in life: the best clothes, the best house, the best car.”</
It has given young people a perceived buying power that causes them to dig themselves into a valley of debt. Eighteen- to 35-year-olds have been raised on video games, reality TV shows and magazines that convince them they must get goods to be happy and successful. They’re the target demographic for the avalanche of modern-day advertising, and yet are the ones who can least afford such possessions.</
“Differentiating between wants and needs is a very tough thing at this age,” says Todd Mark, director of consumer relations for CCCS.</
Part of students’ mentality, Mark says, comes from imitating their parents’ spending habits. Many young people grew up watching mom and dad swipe cards and immediately get goods. But most parents never showed their children the bills that came at the end of the month or told them if they were struggling to make the payments. Last year, the United States had its first negative savings rate — meaning people spent more money than they actually earned — since the Great Depression.</
Georgia hasn’t exactly been a role model. The state leads the country in foreclosures, with nearly one in every 127 households being foreclosed upon. And last year the state ranked third in having the highest number of people who filed for bankruptcy — an average of one household in every 42, compared to the national rate of one in 73.</
“On a whole as a country, we’re living beyond our means,” Mark says. “It shouldn’t be a surprise that kids are going out into the real world without the skills they need.”

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Clayton English writes a check to the federal government for $78.53 each month. That’s his current payment for his college student loans, which total $28,000, not including interest. It’s only going to stay that cheap for another month or two because he was able to wrangle with the feds and explain that his earnings couldn’t cover a typical monthly payment. By the end of the year, the 6.8 percent interest rate will kick back in and his payment will jump up to at least $115 a month. At that rate, it will take him another 40 years to pay off his loans.</
Two years ago, English wouldn’t have imagined he’d be struggling to pay for his education. The tall, slim 24-year-old from Powder Springs majored in business administration at Florida A&M University and aimed to become an entrepreneur or nab a high-paying corporate position. But when he graduated he couldn’t find a good job in marketing or advertising, so he settled for an $8-an-hour part-time gig at IKEA — about $280 a week without benefits — in the living rooms department. “Every check I get goes to paying for stuff I already have or stuff I did in the past,” English says.</
He lives with his parents to save money, but his monthly bills still total around $650. He pays for his cell phone, student loans, credit cards, car note and insurance. He went over the $2,500 limit on one of his credit cards and his monthly minimum payment is now $98 instead of the $60 minimum he paid before. And late in the summer, he got into a car accident and totaled his 2002 Mazda 626. He’s looking for a new car, but is still paying off the $2,500 he owes on the wrecked one.</
Sometimes he feels his generation isn’t ready to face the real world. “We aren’t as well-prepared,” he says. “The older generations were shown how to be an adult. For us it’s like, ‘Do what you want to do and see what happens.’”</
While English still would like to pursue marketing, his passion lies in comedy. He’s performed stand-up for two years now, which brings in some extra cash, and he recently taped an episode for a show that aired on the Black Family Channel. Sometimes he feels college — and the vast amount of money he owes — might not have been worth it. “I didn’t learn how to be funny at school,” English says. “Part of me says I shouldn’t have even gone.”</
He now earns $9 an hour plus commission as a telemarketer. It’s better than working at IKEA, he says, but it still doesn’t come close to helping him really make headway on his college loan and his $2,000 in credit card debt. “I’d like to point a finger and say nobody told me it was going to be like this,” he says. “But I knew. I won’t say it’s messed up, but when I was in school I didn’t think I’d really have to pay back the loans.”</
Juandalyn Coffen has a firm grip on reality.</
She crawls out of bed at 6 a.m. and throws on pants and a sweatshirt. She grabs a banana for breakfast and leaves her Stone Mountain house by 6:30. She walks a quarter-mile to the MARTA stop, hops on the 111 or 116 bus and swipes her $60-a-month MARTA card. She gets off at Indian Creek Station and then takes the subway to the Decatur Station where an Emory shuttle bus brings her to her $7.50-an-hour job as a receptionist in Emory’s dermatology department. The hour-long commute gives the 19-year-old Spelman environmental studies sophomore time to finish up homework or review note cards. She’s tired this morning, as she is most mornings. She didn’t get home until 9 last night, after a full day of classes and a three-hour work shift in the lab.</
Some days, she doesn’t have time for lunch and just grabs a bag of potato chips on her way to class. Other days, she feels alone when she has to decline invitations to hang out with friends or go to a party. It’s hard for her to find time to socialize, let alone sleep, with her full academic load and 24 hours of work each week.</
But Coffen is determined to be one of the fortunate few who will leave college with little debt. She’s highly cognizant of what it takes to afford college. “Most students don’t really know what they’re getting into,” she says. “It really hits them afterward.”</
When Coffen was 16, she had to start working. Her father’s type 1 diabetes escalated to kidney failure and landed him in the hospital. She and her sister found jobs to help their mother pay the rent and utility bills. In 2003, Coffen’s sister, who is a year older, received a full scholarship to Spelman. Coffen wanted to go there, too, but also looked at other historically black colleges in Florida and North Carolina because of Spelman’s expensive $17,000 annual tuition. She understood, unlike many young people, that going to a private college wasn’t going to be without debt.</
“Everything came for [my sister],” Coffen says. “So my parents expected everything to come for me also. But it didn’t flow like that.”</
She decided Spelman would be worth the financial burden because she’d be able to cut costs by living at home. And she took on a second job during the second semester of her freshman year and snagged an annual $2,500 scholarship. So far, Coffen has taken out $8,000 in loans to foot her education bill. She’d like to hold her debt there by applying for more scholarships. But she’s been shut out of some grants because they’re for students who study specific subjects such as engineering or math. She wants to become an environmental consultant or teach, like her father, but isn’t sure if finances will allow her to pursue that career.</
“It’s just becoming really stressful because you can’t do what you want to do anymore,” Coffen says. “You can’t make a living off it.”</
On a crisp Monday in September, Coffen sits in the Manley College Center before her 11 a.m. class and watches several Spelman students walk by in designer jeans and brand-name shirts. She’s a bit bleary-eyed, and adjusts the black glasses that rest on her smooth, dark nose.</
“It’s a fantasy world that we’re living in,” Coffen says. “We really don’t need that purse or those shoes, but we get them anyway because we feel like if we don’t get them then we won’t be accepted. And to be accepted is how we live our lives.”</
A few days earlier, Coffen had passed by vendors selling trendy shoes, sunglasses and purses at the school’s weekly “Market Friday” on campus. Students who owe $30,000 or more in student loans purchased hats and accessories while Coffen hurried to her next class.

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“Spelman tells us to not have too much debt but then they promote things like Market Fridays,” Coffen says. “There’s a lot of mixed messages.”</
This generation’s debt is like a societal global warming. Just as years of unchecked pollution have caused weather to change, years of accumulating debt are making young people live an uncomfortable life of owing others. Last year, a national study showed households under the age of 35 spent 16 percent more than they earned.</
“It’s instant gratification,” Mark, of CCCS, says. “Buy now what you can’t afford to pay for tomorrow.”</
Already, the mounting debt of Generation Me has produced consequences. A survey conducted by college-loan giant Nellie Mae found that 14 percent of young people said student loans caused them to delay marriage and 20 percent said debt caused them to delay having children. What’s more, 40 percent said they delayed buying a home and 17 percent had to change their career because they have such astronomical debt. It’s also crippled the financial independence of young adults; according to a University of Michigan study, 25- and 26-year-olds receive approximately $2,300 in financial support annually from their parents and 33- and 34-year-olds get around $1,500 in help.</
The federal government has not only turned its back to the rising crisis, it has contributed to it. The reality is Generation Me isn’t as politically active or united as their counterparts in the 1960s.</
“Young people are not as engaged in the community because they’re not as settled in their lives yet,” says Alan Abramowitz, a political science professor at Emory. “We know that geographical mobility really reduces voter turnout.”</
He adds that hot-button issues, such as the war in Iraq, don’t have an intense effect on young people because of the absence of a draft. During the Vietnam War, students led the political charge because they were the ones being sent to fight. There’s also been a big shift from the 1960s’ idea of community to today’s focus on individualism, says UGA psychology professor W. Keith Campbell, who is researching the latest generation’s sense of entitlement.</
“I don’t know if young people today are apathetic,” he says, “or simply not very interested in collective social actions directed toward various issues of social justice.”</
The outcome is that politicians push platforms demanded by older generations and allow tuition rates to skyrocket and federal loans to dwindle. The Pell Grants used to be the most widely accessible federal grants. But in 2004, the government changed the formula to make it more difficult to qualify for the grants. The amount that each student can receive is frozen — for the fifth year in a row — at a maximum of approximately $4,000 per student, even though the average annual college tuition costs $5,500 at public colleges and $21,000 at private institutions.</
Young people can’t find reprieve by filing for bankruptcy, either. Since the 1970s, student loans have been one of the few things that don’t get erased if a person files for bankruptcy. And recently, filing for relief is much more expensive and complicated, thanks to a newly minted law Congress wrote last year that gives bankers and lenders added ammunition for collecting unpaid debts.</
The credit card companies are much more aggressive in seeking out new Generation Me customers, from aggressive pushes on college campuses to mailers and relentless television ads.</
“You could look back 50 years ago and say the banking and lending systems were very paternalistic,” Mark says. “They’d tell you if you really weren’t at a point where you could handle a specific loan. Now it’s all about market share.”</
Eighteen- to 35-year-olds face a future of unfulfilled promises. Social Security probably will run out before they hit their golden years and force them to stay in the work force longer. Generation Me is spending money now to pay off debt instead of socking it away for retirement. Pensions may not offer any relief, either, because companies are quickly abandoning such plans and placing the saving on us, on the individual. And it’s not going to get better until things get bad enough that people start taking action.</
“Sometimes we can’t get people’s attention,” says WSB’s Howard, “until they’re already in over their heads.”</
On a rainy afternoon in September, Phillips sips on a Starbucks Frappuccino after a law school class. He’s thinking about getting a third credit card so he won’t have to max out the two he uses. He already owes about $3,000.</
“I guess it would be more pleasant than holding on to the two and having to crunch numbers and actually look at what’s going on,” he says quietly.</
Until last year, Phillips never carried credit card debt. He used his American Express, the one he signed up for during his freshman year at New York University, and always paid off his monthly bill. But a few late nights at the bar, splurges on clothing and dinners out with the guys ran up his tab. His constant use of the card caused Nellie Mae — the lender that gave him money for his first year of law school — to insist he get a co-signer for his second-year loan. But Phillips didn’t want to ask his parents for help. So he took out this year’s $56,014 loan from Citibank instead, which let him borrow without a co-signer. Almost every penny he spends comes from those loans.</
About a month ago, a direct-deposit mix-up left Phillips virtually broke. His cell phone got shut off because he hadn’t paid his bill in several months, and he had to ask for a $1,000 emergency loan from Emory so he could pay his rent and eat while the banks sorted out the mistake.</
Finally, in mid-September, the $9,000 he gets from the bank for the rest of the semester (once Emory took its chunk) arrived. But Phillips was so freaked out that he wrote his first personal budget. He calculated that if he spends around $250 a week on entertainment, gas and food, he should be OK for the semester. He even thought about asking his roommate to carpool to school to save gas.</
“It’s nickels and dimes, but maybe that’s the attitude I need to have,” he says.</
When Phillips first got to law school, he wanted to get his degree to advocate for social change. Now, he’s not sure he’ll be able to follow those dreams because he’ll owe $220,000 in student loans — and that’s before interest.</
He needs a high-paying job so he can repay the loans, which include debt from his undergraduate degree and a master’s program at King’s College in London. If Phillips gets a corporate salary between $85,000 and $100,000 and chooses a standard repayment plan for 10 years, his monthly repayment will be more than $2,500 a month. If he opts for a long-term repayment plan for the next 40 years, he’ll pay around $1,300 a month and will accumulate $420,000 in interest debt.</
His entire future rests on his ability to get a corporate job.</
“What I’m coming up against is this whole idea that I can’t work hard enough at being the lawyer for social change because it’s economically impossible,” Phillips says. “I’ve essentially sold myself to these banks for this opportunity. When I pay myself off, I’ll be an old, wrinkled man.”</
Even though he’ll have to borrow $60,000 to pay for his last year of law school, he continues to spend money he doesn’t have. He tells himself it’s OK to get a third credit card. He tells himself it’s OK to buy the two Ralph Lauren polo shirts for $95 a pop. And he tells himself everything’s going to be OK.</
“The future me wants the present me to live really well,” Phillips says. “Who wants to stop living well?”</
Due to an editing error, this story previously reported that Congress rewrote the bankruptcy law last year so that student loans have been one of the few things that don’t get erased if a person files for bankruptcy. The correct information is since the 1970s, student loans have been one of the few things that don’t get erased if a person files for bankruptcy. And recently, filing for relief is much more expensive and complicated, thanks to a newly minted law Congress wrote last year that gives bankers and lenders added ammunition for collecting unpaid debts.