Young, Gifted and in Debt

Village Voice
Generation Debt: The New Economics of Being Young

The Ambition Tax
Why America's young are being crushed by debt—and why no one seems to care

"The next generation is starting their economic race 50 yards behind the starting line," says Elizabeth Warren, a Harvard Law School professor and author of The Two-Income Trap. "They've got to pay off the equivalent of one full mortgage before they make it to flat broke, in order to pay for their education. They can never get ahead of the game, because they're constantly trying to play catch-up.

From this side of the Pacific, we've always shuddered at the prospects for young people in a place like Japan. The routine of archetypal sarariman, or corporate drone, sure sounds dreadful: a drab college education followed by a youth of low-paid toil, long commutes into Tokyo, and little chance for advancement beyond middle management. The very best a sarariman can hope for, we're led to believe, is to someday go into hock for a suburban condo and to scrape together enough money so the kids can attend after-school cram sessions.

It all seems so tedious, so pointless, so restrictive—in short, so un-American. In our country, the story goes, a youngster's economic options are limitless as long as he or she's got gumption and smarts. At 21 or 22, the age at which a sarariman supposedly begins his trudge toward a corporate pension, his American peer should be wrapping up college and preparing to enter a workforce that justly rewards ambition. By 33 or 34, an American with a bachelor's degree should be sitting pretty, with a worthwhile job, a house with a backyard, and enough scratch in the bank to send Junior to preschool. Anyone who falls short of that middle-class dream is obviously a no-count layabout.

But is the sarariman treadmill really so alien to the American experience today? The average collegian in the U.S. isn't graduating into a world of boundless opportunity, but rather is $20,000-plus in the hole thanks to student loans and credit cards. So begins the snowball effect: The most desirable entry-level jobs often pay wages too low for the indebted, who must fork over a large percentage of their salaries to Sallie Mae or Citibank. Other posts are reserved for those who can afford to work unpaid internships, or whose parents can support them through an extra year or two of graduate studies.

Employers are increasingly reluctant to defray the cost of health care, so tack on an extra several hundred bucks a year, even $2,000 or more for the technically self-employed—"permanent temps," as the saying goes. Though housing is supposedly cheaper than ever, due to record-low interest rates, the ambitious young aren't necessarily enjoying the trend. Rents in many metro areas, where a good portion of knowledge-based jobs are located, remain sky-high; cheaper digs exist in the suburbs, though that means enduring sarariman-like commutes.

High levels of debt preclude the young from getting the sweetest mortgage deals, and they often end up in the clutches of sub-prime lenders. On average, people who had to borrow their way to a graduate degree are already behind $45,900; median debt for grad students has increased 72 percent since 1997. (Aspiring doctors have it the worst, with average loans of $103,855.) Add to those obligations an investment in a humble bungalow, and you're on the hook for a quarter million or more—not counting interest.

The cumulative effect is that merely keeping one's head above water, rather than getting ahead, has become the top priority for Americans between the ages of 18 and 34. Pursuing the relatively modest dream of doing better than the generation before requires serious capital—up front in the form of tuition and loans, and hidden in the form of lost opportunities. Call it the ambition tax—the money you've got to pony up if you want a college degree and a shot at middle-class bliss. But it's really more of a gamble, as there's no guarantee those tens of thousands of dollars will get you where you want to go.