- The Washington Times - Tuesday, March 5, 2002

Twentysomethings increasingly are filing for bankruptcy as they graduate from college to face tens of thousands of dollars in debt from high education costs and credit cards.
Bankruptcy filings reached a record high last year, totaling 1.5 million. Studies showed that the fastest-growing group of filers comprised those younger than 25, who accounted for nearly 100,000 filings.
The trend makes sense, bankruptcy lawyers say, considering that graduates on average owe $19,400 in student loans, as data from the General Accounting Office show.
Meanwhile, undergraduates are carrying credit-card balances of $2,748, up from $1,879 in 1998 and more than double the average from 1993, according to Nellie Mae, a major student-loan provider.
"You don't have to be an economic genius to figure out that if you're out of grad school with $100,000 at 7 [percent] or 8 percent interest and the only job you can find is paying $39,000, then you're going to be in bad shape," said John Garza, a bankruptcy lawyer with Garza, Regan & Associates in Rockville.
Five years ago, he saw one or two cases of student-loan-related bankruptcies a year. Now, he says, he sees one or two a month.
"Student loans have gotten so much larger than I've ever seen, and interest rates and the repayment rates are much more onerous than they used to be," Mr. Garza said.
Students do not have to begin payments on loans taken out through federal financial aid, which offer low interest rates, until a year after graduation and can be deferred if a student continues education. But loans made by private lenders, which have much higher interest rates, are repayable earlier and often through larger payments because of their shorter terms.
Filing for bankruptcy does not erase student loans it only defers them.
The loans can be erased in rare cases when a bankruptcy filer can prove undue hardship. Although unusual, this is becoming easier, Mr. Garza said.
"The doors are starting to get cracked open because I think judges are starting to realize that there are situations where student loans have just gotten so huge that there's no hope or expectation that anyone could pay it back," he said.
Custis Nelloms didn't think he could pay back the nearly $50,000 he owed in student loans, so he filed for personal bankruptcy in December.
Mr. Nelloms, a Maryland resident who examines patent applications at the Patent and Trademark Office, racked up debt over 11 years while attending three colleges. He earned his master's degree in business administration in 1999 but was unable to find a high-paying job.
At 33, Mr. Nelloms is recently married. He was paying nearly $400 between two loans and defaulting on another two. So he filed for bankruptcy, losing a new car and avoiding payments on $1,400 of credit-card debt.
"Trust me, I did everything in my power to not have to" declare bankruptcy, he said. "But I had no choice."
His sentiment was echoed by Michael, 28, who filed for bankruptcy in August.
Michael, who didn't want his last name published, filed after realizing how much he would owe in three years when he expected to receive a doctorate in political science from a New York university.
"My dilemma … was that I could either quit school with $60,000 in debt and look for a job, or continue on in school, finish my degree and be $160,000 in debt," the Maryland resident said.
Instead of making a $600 monthly payment, Michael has to pay $150 a month for four more years. When the time comes to make the full payments, he says, he likely will be "in the same boat" as when he filed for bankruptcy.
One in three students has at least four credit cards, and one in 10 will graduate with balances exceeding $7,000, according to Nellie Mae.
Rising credit-card debt among college students has prompted some universities to ban issuers from marketing on campus. But other colleges are entering partnerships that benefit them, usually by giving the credit-card companies their student lists and earning a percentage of charges on their students' cards.
First USA, for instance, is paying the University of Oklahoma $13 million over 10 years for the exclusive right to market credit cards to students, alumni and employees, and to issue cards bearing the university's name. The bank also is giving the school 0.4 percent of every purchase charged on the cards.
MBNA America Bank has similar contracts with about 600 colleges and universities, with about half a percentage point of interest earned on the cards going to the schools.
At Columbia University, the MBNA Student Center, which opened in 1996, was built partly with a $25 million donation from the bank. At Georgetown University, the company has provided about $7 million for the construction of the MBNA Ryan Performing Arts Center, to open next year.
Johns Hopkins University in Baltimore has banned credit-card companies from marketing on campus "because credit card use is typical among undergrads and many build up debt before graduation," it said in a statement.
But to say that college students are irresponsible with credit would be unfair because many people are irresponsible with loans, says Catherine Pulley, spokeswoman for the American Bankers Association.
"The average kid today spends $75 a week," she said. "So young people have spent money long before they turn 18 and are legal to get a credit card. Credit cards are simply another vehicle, and spending habits have been established by now for better or worse."
Miss Pulley says the lack of financial literacy among Americans contributes to the problem.
But critics of the lending industry argue that easy access is problematic when students are making hefty student loan payments a year after graduation. Students are lured by credit cards because they allow them to live the lifestyles they think they will have once they earn a diploma, said Robert Manning, author of the book "Credit Card Nation."
"A lot of them are so shocked that they are going to have to reduce their standard of living after they graduate that they feel for some reason the rules of the game have been changed on them," he said.
Recent graduates increasingly are turning to graduate school as a way to ride out the recession while honing their skills.
Applications for the fall are up at graduate schools from the University of California at Los Angeles, Yale and Vanderbilt to the University of Maryland at Baltimore, Marymount University, Catholic University and Johns Hopkins.
The rising interest in graduate school also can be seen in the ballooning number of people, up 12 percent from a year ago, taking Graduate Record Examinations, which are often a requirement for admission.

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