NEW YORK -- When Kate Rollins went further into debt in order to postpone the repayment of her existing student loans, she knew she was in trouble.
Two years ago, Rollins, now 24, graduated from San Diego State University with a degree in political science. Though she owes $50,000 in undergraduate student loan debt, as well as another $2,400 split between two credit cards, she recently started a full-time certificate program in marketing at a local community college. Being enrolled in school allows her the relative freedom of loan deferment -- a stopgap measure that is nothing if not a temporary solution.
Rollins, who earns about $1,000 per month working part-time as a cashier at Radio Shack, said she ran up her credit card debt "just buying food, and low-budget food at that -- things like ramen and frozen fruits vegetables from Costco. I just couldn’t keep up.”
Rollins is hardly alone in her struggle to pay down large quantities of debt. According to Mark Kantrowitz, a financial aid expert who publishes Fastweb.com and Finaid.org, the average graduate finishes school with about $25,000. Many of them are encountering an unanticipated struggle when it comes time to finally start paying them off.
But does debt -- even when it's assumed in service of educational goals -- wind up negatively impacting a young person’s self-esteem?
Yes and no, according to a new study released yesterday by Rachel E. Dwyer, an assistant professor of sociology at Ohio State University.
"Debt can be a good thing for young people -- it can help them finance goals they couldn’t otherwise, like a college education,” said Dwyer, whose findings appear in the latest issue of Social Science Research, an academic journal.
Many people who participated in her study viewed debt, even large amounts of it, as an investment in their future selves, Dwyer said. After sampling more than 3,000 young people between the ages of 18 and 34, she found that many people under the age of 27 were positively impacted by debt; her data showed that both higher levels of credit card and college loan debt equated to higher rates of self-worth. Additionally, these respondents reported feeling not only in control of their lives, but uniquely primed to achieve their goals.
But apparently such optimism has its limits. Specifically, those 28 and older began showing signs of stress when it came time to pay back the money they took on in their youth.
“It may be that the positive effects are closer to when people take on the debt and at the time think it was a good reason,” reasoned Dwyer. Among the people she sampled, the average educational debt was $6,600, while credit card debt averaged $950. “Those positive effects may wear off as the payment schedule starts to intensify.”
Whether it carries positive effects with it or not, other scholars have wondered when debt became not only accepted, but a normalized part of everyday life.
“How did American culture shift to the point where everyone is totally fine with carrying such large amounts of debt?” asked Michelle Barnhart, an assistant professor of marketing at Oregon State University. Earlier this spring, she completed a study that examined how Americans became burdened with five-figure credit card bills and “mortgage payments up to their eyeballs.”
Barnhart noted that 20-somethings had an especially hard time integrating credit cards into the routine of normal, everyday life -- for instance, balancing the need to establish decent credit ratings while also learning to use them responsibly.
Younger respondents also separated debt into two distinct categories: good debt versus bad debt. “Good debt was for things seen as investments -- school loans, mortgages. Even credit card debt you were using to build your credit score could be seen as good debt,” said Barnhart. “But bad debt was seen as overspending on your credit card, whether for clothes or charging last night’s dinner."
Yet Rollins has trouble thinking of the money she owes as "good" debt. While she has her degree, the subsequent job offerings have been less than robust, and a persistent cloud of debt looms above all else.
Rollins is aiming to pay off her credit cards before tackling her student loans. Lately, she's only been able to afford he minimum monthly payment, she said.
“My spending habits are a lot different now,” said Rollins, who has turned down multiple offers for additional credit cards. Dreams of graduate school are indefinitely delayed as well. "I touched the pan and got burned and I’m not going back for more. I’ve finally learned my lesson."