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Javanomics 101: Today's Coffee Is Tomorrow's Debt

Part of the $115,000 debt Kirsten Daniels of Seattle incurred to finance law school went toward her regular caffeine fix.
Part of the $115,000 debt Kirsten Daniels of Seattle incurred to finance law school went toward her regular caffeine fix. (By Blaine Harden -- The Washington Post)

The second-largest gourmet coffee retailer in the Seattle area, Tully's, did respond. Its chief financial officer, Kristopher Galvin, said he had never before heard any complaint about the long-term financial impact of spending $3 a day on coffee, either for consumers or for students buying the drinks with borrowed money.

"I would guess, based on my years in college, that having lots of good coffee would help you get through college and help you pay back those student loans," Galvin said.

Nonprofit groups that specialize in lending money to college students disagree. They object not to lattes or cappuccinos but to the several thousand dollars of student debt that can be incurred to buy them. In decades past, lenders chided college students for excessive spending of borrowed money on pizza and cigarettes, but the staggering ubiquity of Starbucks appears to have narrowed the nagging to foamy espresso drinks.

According to recent federal figures, 42 percent of undergraduates borrow money for school. In professional schools such as law and business, 78 percent rely on borrowed money.

"The question that needs to be posed is 'Do they really need to have a Starbucks every day?' " said Jeffrey Hanson, director of borrower education service at Access Group, a Delaware-based organization that is the nation's third-largest provider of graduate school loans. "Since they are living, in part, on borrowed money, they need to be aware of the opportunity cost of that $3 latte. Once they spend it, it is not available for a loaf of bread."

In visits to college campuses around the country, Hanson hands out fliers that detail the "real cost" of lattes purchased with borrowed money. He also gives away cautionary stickers that can be attached to credit or debit cards. They show a steaming espresso drink, a dollar sign and a question mark.

At the University of Washington in Seattle, the largest higher-education institution in the Pacific Northwest, money-management courses also single out lattes, warning that they can be a "major budget buster." About half of the university's 36,000 students receive loans.

But these warnings have a way of getting lost amid the sweet aromas emanating from university-owned espresso shops inside nearly every major building on campus. The university began a major espresso expansion in 1997, after a survey found that coffee was far and away the favorite on-campus "food."

"We will do about 50,000 pounds of coffee a year," said Vinnie Gore, associate director of housing and food services at the university, adding that "coffee is still extremely popular, and coffee sales have been growing every year."

Jon D. Markman, an investment manager and writer in Seattle, has done a lot of thinking about why gourmet coffee sellers such as Starbucks are so successful, especially among young people. Markman himself spends $3.22 every workday at Starbucks on a double-tall, extra-hot latte with a single pump of sugar-free vanilla.

"Finger-wagging won't stop people from buying lattes," said Markman, who argues that Starbucks has pulled off "a cultural hat trick that is unparalleled in restaurant history."

He says it has created the white-collar equivalent of the tavern next to the car plant, a place where office workers, 20-somethings and teenagers can all gather in comfortable surroundings for "an addictive product that doesn't kill you."

"Financial planners and career counselors will never have any effect on this behavior, unless they can break the psychological mold of the latte-drinking cohort by mounting a campaign similar in size and impact to the campaign against cigarettes," he said. "I don't see that happening."

At Seattle University School of Law, Lim concedes the futility of persuading students to stop spending borrowed money on high-priced coffee. Still, she refuses to give up. The consequences of latte-larded law school debts are worrisome for the legal profession, she said, insidiously tilting career paths toward jobs that pay more but satisfy less.

"The amount of money you owe directly affects the professional choices you have," she said.

Debt-panicked law school graduates, she said, tend to run away from low-paying jobs such as public defender (about $45,000 a year) and into the more remunerative arms of corporate law.

Lim, by the way, is not a latte drinker, unless someone else pays.

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© 2005 The Washington Post Company