Joel Winston

Graduating in Debt

lucy puts up her dukesWhen I was in grade school my parents made a deal with me. My responsibility was to work hard in school so that I could attend the best college possible. Their duty was to pay for the best college possible. Two years before my high school graduation, however, our family's financial situation took a dramatic turn for the worse. My father, a once prominent orthopedic surgeon, was pushed into early retirement. Although he had built a successful medical practice over a number of years, he had failed to seriously save money while he was making bank. Moreover, my father was haphazard and disordered in his management of investment and savings accounts. This left my mother, my two younger brothers and me unprepared for an almost complete loss of income.

I, nonetheless, continued my college applications blissfully unaware of the financial consequences of my decision. I knew the school of my choice, the University of Michigan at Ann Arbor, would be expensive, especially for out-of-state tuition. The price tag was of no concern to me, however, as I was still relying on my parents' promise to foot the bill. Further complicating the matter was a divorce that left the financial responsibility of my college education in the hands of my disorganized father. I will never understand whether it was complete inexperience or a heady excitement just to be going to college that allowed me to ignorantly trust my father to handle everything properly. Half way through my first semester as a college freshman, it was time to register for the next semester's classes. That morning I hurriedly picked up the telephone to connect to the university's dial-up registration system. After punching in my personal information on the keypad, I was entirely confused when the computer generated voice responded that a "hold credit" had been placed on my account and that I should contact the registrar's office.

After a few calls, not only did I learn exactly what the registrar's office does, but I also learned that my father had not paid a penny of my first semester's tuition. Without first semester paid for, I was prohibited from registering for the second. Needless to say, I abruptly called my father and released into a frustrated tirade. He helped me secure the money for tuition, but not before a week and a half had passed and my ideal class schedule was a faded memory.

By the end of the second semester of my freshman year, I had taken out my first student loan. There would be a handful more before I graduated, but the first was the hardest to come to terms with. I wasn't supposed to foot the bill for college, let alone spend a decade paying for it. Allowing myself to go into debt didn't seem like the responsible thing to do, until I realized that our United States government thrives on it. As many college graduates and young adults are coming to learn, debt is a reality of American life. Case in point: On May 27, 2003 President Bush quietly signed a bill increasing the Federal debt load by $984 billion dollars, to a record $7.4 trillion dollars. Cutting through misleading political rhetoric, the increase in the overall Federal debt load generally means that the government cannot afford to cover its expenses. Rather than cut back on spending, the government borrows the money it needs to pay its bills. Furthermore, the government has to pay annual fees on the upkeep of the debt (similar to interest paid on a credit card).

The budget of today's college student is similar; to meet the rising costs of higher education, students must borrow money to pay tuition, books, food, and housing costs. Thereafter, graduates are required to repay the money that they borrowed, along with interest on those monies. Due to a combination of rising educational costs and a weakened economy, the real cost of college today is spiraling out of control for many Americans. According to Nellie Mae, a government agency that provides student loans to college students, last year the average undergraduate student loan debt reached $18,900. This is a 66 percent increase over the past five years. As with averages, there are some graduating students with no debt, while others carry significantly more. Also noteworthy is that this figure does not include other types of debt, such as credit card debt, which can reach into the thousands of dollars for some students.


Last year the average undergraduate student loan debt reached $18,900. This is a 66 percent increase over the past five years.

Additionally complicating the matter for graduates is the fact that they face one of the weakest job markets since the end of World War II. In a survey conducted by the National Association of Colleges and Employers, overall, businesses plan to hire the same number of college graduates as last year. Unfortunately, this turns out to be bad news, as there were 36 percent fewer new hires last year than in 2001. Adding further to dismal economic conditions, the Department of Labor reported that the unemployment rate in May climbed to a nine year high of 6.1 percent.

For several reasons, however, students should do all that they can to avoid handling their personal finances in the same manner that the Federal government handles its own. First, when the Federal government borrows such hefty amounts, there is an unspoken understanding that such debts will never be completely paid off. And secondly, America holds such financial prominence in the world market, that, for the time being, they do not need to worry about angry collectors and bad credit ratings. On the other hand, as a citizen you must pay off all the money you have borrowed. Moreover, you must do it in a timely fashion. Otherwise, your credit rating will sour and it will be difficult to get future loans for such things as a house. In this sense, protecting your credit rating is one of the most important things you can do as a consumer. Once your credit rating becomes tainted, it is a long process to restore it.

As a recent college graduate with three times the average student loan debt, I am here to offer a glimmer of hope in an otherwise dark financial outlook. Now for the tough news: If you don't stay on top of your financial obligations, they will overwhelm you. The good news is that the one constant for success is planning, planning, and more planning. With this in mind, the first thing you must do is make an honest and accurate assessment of your financial situation. Take some time alone to sit down and go over any long-term debts for which you are responsible; this includes student loans, credit card debts, and car payments. Specifically, it is important to know every single detail of such agreements, no matter how minute. This includes (but is not limited to) interest rates, lengths of repayment, and penalties for early or late repayment.

The next step is to make a budget. This does not require any fancy computer software or an advanced degree in accounting. Rather, take a pen and paper and list your monthly expenses such as rent, groceries, cell phone bill, and the monthly payments on student loans and credit card debt. On the other side of the paper, list all constant sources of monthly income. Subtract the two figures and (hopefully) you will find yourself with some extra loot, once all bills and obligations have been met. Most importantly, with this extra money, pay down any outstanding credit card bills or put it towards the principal amount of your student loans. You must resist the urge to spend this money at the mall or on eBay. The quicker outstanding debts are paid down, the less money you will spend on interest payments, which, overall, can save you thousands of dollars.

Finally, it's not all bad news. The weakened shape of the economy is actually good news, as far as interest rates are concerned. If you have not consolidated your student loans yet, now is an excellent time to investigate such opportunities. Especially if you have just graduated and you have Federal loans, the interest rates will drop to an all time low of 3.42 percent on July 1 (see www.ed.gov for more information). At times student loan debt may seem overwhelming, but with long term planning and simple financial management strategies, it is certainly manageable. Just be glad you are not the Federal government -- the recently raised $7.4 trillion dollar debt ceiling is only expected to provide funds until half way through 2004.

Joel Winston is a 21-year-old recent college graduate working to energize the political consciousness of Generations X and Y.
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