Fluff the pillows and stock the fridge because, chances are, your adult kids are coming home. Nearly one-third of Americans age 25 to 34 have lived with their parents in recent years, according to a 2011 study by Pew Research Center. But before you start blaming a generation of millennials — known for their unearned trophies and sense of entitlement — remember it’s the generations past who wrought an economy with tuition hikes and growing unemployment.

“Coming out of school with debt is always hard, but factor in the economy and a heavy loan can be a crushing burden for a recent graduate,” says Emre Titizer, a managerial economics major and co-president of the Finance and Investment Club at UC Davis.

In 2010, more than half of public-college graduates left with a diploma and an average debt of $22,000, according to the College Board. For private schools, it’s worse: More than two-thirds of students are leaving with an average of $28,100 to pay back. In today’s dollars, that’s almost a down payment on a Midtown condo or a starter home in South Land Park.

In the Capital Region, an average Sacramento State student graduated with nearly $14,700 in school debt in 2010, compared with a Rocklin-based William Jessup University student at $23,160, according to the Institute for College Access and Success. If these graduates want to stay local, they face unemployment rates as low as 9 percent in Placer to nearly 20 percent in Yuba-Sutter.

Nationwide, student debt has topped $1 trillion, surpassing credit cards and car loans. In fact, some analysts are predicting school loans to be the next mortgage-style bubble as students opt for more education amid dim employment prospects. More than 80 percent of bankruptcy attorneys say student loan debt has risen among potential clients, according to a February report published by the National Association of Consumer Bankruptcy Attorneys. And it’s not just students who are in trouble. An estimated 17 percent of parents whose children graduated in 2010 took out students loans, compared to 5.6 percent in 1993.

Parents are picking up more than the tuition tab. A recent study suggests that parents across all income levels are contributing roughly 10 percent of their income to their adult children.

The average Sacramento State student graduated with nearly $14,700 in school debt in 2010, compared with a William Jessup student at $23,160

Experts say there is some hope. While individual households can’t control job losses or tuition hikes, they can control their financial plan. Get started on saving and investing as early as possible, says Frank Parks, president of the Future Investors Clubs of America Inc. The Florida-based group runs chapters in Sacramento, Stockton and Lake Tahoe.

“We’ve had many of our students start to invest as early as 8 years old,” he says, “and many have become very successful.” However, it’s a challenge to teach students about finances when many parents are already overwhelmed “providing their families with basic necessities, such as housing, food and transportation.”

Before students begin any plan, it’s important to ask two essential questions, says Debbie Grose, a certified financial planner with Lighthouse Financial Planning in Folsom. How old is the student, and what’s the financial situation of the parents?

High school juniors and older students can generally only focus on mitigating the cost of college. Younger students should focus on wealth accumulation, she says.
Tools commonly recommended by advisers include 529 college savings plans, Coverdell education savings accounts, Roth IRAs and U.S. savings bonds. Of course, there’s government aid and scholarships, but much of those are based on financial need.

If students have to take out loans, make sure they are federally subsidized, Grose says. These loans are regulated by the government and offer protection that private loans do not. And once you start paying the money back, look at whether the interest on your education debt is tax deductible.

“Pre-Great Recession, many parents used home equity loans to finance education,” Grose says. “This was a good tool based on the interest deductibility (on balances up to $100,000). Post-Great Recession, ‘home equity’ seems to be a bit of an oxymoron.”
Long term, student debt could mean delaying life’s milestones, such as buying a house or having children. College students can’t even think about these things, let alone save for retirement, says Titizer, age 21.

“Making a [living] is the most important thing. The primary focus of all my peers, as well as my generation, is simply landing a job and beginning their careers,” he says, “a goal that seemed to happen naturally to college graduates in the past.”