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Soaring Credit Card Debt
Beth Foster's credit card debt was not much better -- $1,500 -- when she graduated last December from the University of Iowa. Her student loans, meanwhile, came to $18,000. Wanting to work for a nonprofit, she was prepared for money to be tight. But she hadn't factored in a terrible job market. Now, to stay afloat, she's working two jobs -- as a cashier at a Target department store and as an apartment cleaner. All together, she takes in about $800 a month, while paying out $600 for rent, utilities and food. What's left barely makes a dent in her debts. "I'm scared out of my mind," says Foster.She's not the only cash-strapped graduate who's freaking out. Rich Call sees them all the time. As regional vice president for Consumer Credit Counseling Service of the Midwest Inc., Call has witnessed a big switch from a decade ago: His agency is now swamped with recent graduates deeply in hock. What he can do is help them restructure credit card debt. What he can't do anything about are student loans.
If the debt is too far gone, the wisest person to visit may be someone like Jeffrey Freedman. A bankruptcy attorney in Buffalo, N.Y., Freedman says his firm never saw students come through the door a few years ago. "Now, five percent of our clients are college students," he says.
There's plenty of business to go around. According to Harvard's Elizabeth Warren, about 100,000 young people under age 25 declared bankruptcy last year. "A student will graduate believing she can make her debt payments," says Warren. "But she will fall further and further behind, borrow more money on credit cards and finally realize that she has no possible chance of catching up. Those are the people we see in bankruptcy."
Camille Holt, 22, actually filed for Chapter 7 bankruptcy several weeks before she graduated last spring from the University of North Carolina -- ironically, with an economics degree. She was loaded down with about $25,000 in student loans, and nearly $20,000 in credit card debt from clothes, books, food and trips home while in school. Chapter 7 won't wipe clean the student loan debt, but it clears away all the rest. "Before, I worried all the time about my loans," says Holt, who works in a bank's trust division. Her Chapter 7 filing "has been like a sigh of relief."
Still, she may discover her diploma cost her even more than she thinks. For the next ten years, Holt's bankruptcy will be a visible part of her financial history. It could well come back to haunt her when she applies for a mortgage or car loan.
In a few tragic cases, the pressure of debt has overwhelmed students before they could see a way out. Sean Moyer was given a full scholarship to attend the University of Texas at Dallas. Soon after his arrival, he was being offered something else: his first credit card from an on-campus vendor. Before long he had signed for another card, and another. Eventually, Moyer was juggling 12 credit cards and owed about $13,000. Trapped by the debt, he moved back home in his junior year, enrolled at the University of Oklahoma, and hoped to figure out how to make ends meet. Moyer wound up taking on two jobs -- one at the college library and another manning the night desk at a Holiday Inn. Even those two paychecks weren't enough.
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