For most college students, these are the best years of their lives. They’re defining who they will ultimately become in their careers, they’re moving forward with their educations, maybe meeting the loves of their lives. They’re also blowing off the burden of credit card debt with the belief that they’ll handle it after graduation. Unfortunately, for too many, they’re setting themselves up for many years of paying for a nonchalant attitude.
A new Ohio State University study shows that college aged Americans are taking on more credit card debt than their parents did at that same age and they’re taking far longer to pay it off. Not only that, but the chances that they’ll die with that same credit card debt are growing, too. The study shows people born between 1980 and 1984 will have around $8,200 more owed in credit card debt than their grandparent’s at the same age and about $5,700 more than their parents.
Lucia Dunn, an OSU economics professor and co-author of the study said,
If you project out life expectancy, then younger cohorts are not going to be able to pay off their credit card debt by the end of their life, and they will die with it.
Dunn also believes the trends are here for the long haul, meaning younger generations will also die with credit card debt.
But there’s more. Instead of feeling stressed by the lack of money and credit card debt, many young adults say they actually feel empowered by those credit cards and even their student loan debt. The researchers discovered that the more owed on credit cards and college loans, the higher their self esteem. It also made them feel as though they are in control of their lives. Those emotions are stronger among those in lower economic classes. Only the oldest of those in the study, between the ages of 28 to 34, show any kind of stress about the money they owe.
Rachel Dwyer, lead author of the study and assistant professor of sociology at Ohio State University explains that for these young people, debt can be a good thing and can help them achieve important life goals, including a college education. Too many simply don’t recognize what she calls “significant dangers” and says they see it as a positive instead of a burden.
Two Competing Mindsets
For this part of the study, researchers found two competing views of how debt could affect one’s self concept. Dwyer said that while some who have debt should recognize the positive benefits because it is indicative of a better future, such as student loans, others with different debt, especially credit card debt, should approach with a mindset of getting out from under it, especially if they have a tendency to spend more than they make.
We thought educational debt might be seen as a positive because it is an investment in their future, while credit card debt could be viewed more negatively,
Meanwhile, Dunn believes the growing credit card debt on college campuses will likely mean action from the nation’s biggest banks. She also believes,
Banks are going to have to get tight on giving credit.
The study also revealed that if banks would raise the minimum payment requirements by just one percent, it could help young people pay off debt at a faster rate.
Remember, the national total of student-loan debt reached $1 trillion in 2012. This is incredibly alarming since the number of young people who take on student loans is much higher than what generations before them. Tack on credit card debt, and the numbers become astronomical.
Student loan debt is just crippling kids when they come out of school,
said Julia Heath, director of University of Cincinnati’s Economic Center.
For the individual student with significant amounts of debt they will be unable to do a lot of transitional things, such as go to graduate school, get married, buy a home or have kids.
As if all of this weren’t bad enough, there has to be a focus on the lack of jobs for those who are graduating college. After all, you can’t really return a college degree if it turns out to be not what you thought it would. There are no refunds. Plus, student loan debt isn’t dischargeable in a bankruptcy, so even if these college students began filing bankruptcy, they’re not really “fixing” anything. They’re alleviating part of the bottom line, but they still have to find jobs and they still have to pay the student loans. With a bankruptcy on their credit history, there’s a good chance they eliminate a number of available positions since more companies are now looking to an applicant’s credit history.
And now there’s this: The massive amount of debt is sure to affect consumer spending. That, of course, makes up the lion’s share of the economy and like the housing bubble, Heath believes the debt held by young people could bust and cause an economic crisis.
Attended College, No Degree
Worse, a growing number of college students are leaving school minus their degree. This puts them at an even bigger disadvantage. Not only do they not land the jobs their degrees would have qualified them for, but they’re leaving with options that include lower paying positions and hardly enough to cover the student loans, which still must be repaid whether they graduate or not, along with the credit card debt. Many students are actually using their credit cards to cover the expenses of attending school, such as buying textbooks. And those students in middle and lower class families are the ones who facing the biggest obstacles. They’re facing the financial challenges their own parents might have faced at different times.
Naturally, the study found that debt might make college students feel empowered in the short term, but before long, they’re facing the negative consequences. The positive effects are always short lived as the bills ultimately become due and when they go unpaid, it sets up a dynamic that includes lower credit scores and difficulties in getting approved for mortgages as well as the possibility of landing jobs.