Generation Debt

Helen Lowery graduated from Boston University last Sunday with a bachelor's degree -- and $22,000 in loans. But that $22,000 isn't stopping the psychology major: She plans to attend American University's Washington College of Law this fall, where she expects to borrow money again - this time, $120,000.

"It's daunting," says Ms. Lowery. "I'll be putting myself into debt for 15 years after law school. It just bothers me that there are so few other options if I want a good education."

Student-loan debt encumbers almost two-thirds of the Class of 2006, according to federal statistics. With tuition costs continuing to rise far faster than inflation and interest rates on federal student loans about to increase, the debt load for future graduates is set to become so heavy that it's likely to turn more students away from low-paying occupations like teaching.

"Student debt is something that's grown very quickly and under the radar," says Anya Kamenetz, author of "Generation Debt," which characterizes student-loan debt at a tipping point. "The demand for a college degree is rising and the price of tuition is rising. So student loans are really the only path for a lot of students."

Nationwide, the student-debt picture has fluctuated somewhat in the past decade and a half. The average student-loan debt doubled in the 1990s, but the situation improved after that, says College Board analyst Sandy Baum: Among recipients of bachelor of arts degrees, both the percentage of students taking out loans and the amount they borrowed dropped between 1999 and 2004, according to the College Board.

Now, however, student indebtedness may be turning again for the worse, Ms. Baum says, although there is no comprehensive data for this year and last.

"In the past few years, tuition prices rose a lot and Pell grants have not," she says, referring to the federal program that gives funds (which do not need to be paid back) to undergraduates based on financial need.

For Zachary Pedigo, tuition costs made him drop out of the University of Texas at Arlington after only a year, and he later pulled out of the University of North Texas. He's still working to pay off a $10,000 student loan.

"There are a lot of reasons I'm not in college right now, but the biggest is the cost," says Mr. Pedigo, who hopes to open a recording studio in Granbury, Texas, with friends. "College was just too expensive, and getting more expensive every semester. It just seemed like a lot of stress to make it through school just to be paying off debt until you're 30."

For those who do graduate, the average loan debt was $17,600 in 2004 -- $22,581 in the case of private colleges, according to the Center for Economic and Policy Research. Ms. Kamenetz says those averages are too close to the $23,000 maximum that undergraduates may borrow from the federal Stafford loan program over four years.

"If students need to go over that maximum, it means they need to take out private loans with higher interest rates," she says. "That means they'll likely be paying more over a longer period of time, which slows down life even more."

Of the three major variables affecting student debt -- tuition costs, the job market, and interest rates -- the latter has the gloomiest forecast, says Jacqueline King, director of the American Council on Education's Center for Policy Analysis.

While tuition prices continue to rise, the acceleration slowed this year, Ms. King says, offering a positive projection for future college students. And the job market is relatively healthy, she says, opening up more doors for graduates. But interest rates will increase on July 1, when federal loan programs move from a variable rate system to a higher, fixed rate. Stafford loans will jump from the current 5.3 percent rate after graduation to 6.8 percent. PLUS loans, designed for parents, will rise from 6.1 percent interest to 8.5 percent.