Recent college graduates continue to face a tough job market, two and a half years out from the so-called end of the Great Recession in June 2009.
College tuition has grown faster than inflation or family income. As the cost of a four-year degree has risen, so has college debt, but default on those loans has risen even more sharply over the past 4 years.
Before the Great Recession, the overall student loan default rate was 6.7% in 2007. This year, according to an article published in the New York Times, federal student loan defaults have shot up to 15% of borrowers defaulting in the first two years of repayment. That’s three in twenty young people with a college degree or some higher education who are starting out in life with bad credit. Borrower distress extends beyond those who have already defaulted, as a recent study by the Institute for Higher Education Policy discovered. A study by the Institute has found that for every borrower who defaults, at least two more fall behind in payments. A mere 37 percent of borrowers who started repaying their student loans in 2005, three years out from the Great Recession, were able to pay them back fully and on time.
The relationship between persistent high unemployment and rising default cannot be ignored. According to the Project on Student Debt, graduates from the class of 2010 carry an average of $25,250 in student debt, but less than half (45.4%) of undergraduates with a degree in the humanities under 25 are employed in a job that requires a college degree, and those lucky employed grads will make on average $20,000 a year.
Political Scientists, Sociologists and History Majors are more likely to find employment in the service industry or temporary work in holiday retail than they are to begin their careers. This kind of set-back, called cyclical downgrading, will cost recent college graduates a 10-15 percent reduction in earnings lasting 10 years or more. Entering the labor market during a recession has two important consequences causing depressed wages; A decline in job quality and a decline of starting wages.
Entry-level jobs in the professions remain crowded with workers who graduated before 2008. Gen X and older Millennials are in turn impatiently waiting for middle-management positions that are themselves crowded with graying (often gray) boomers who postponed retirement when the value of their homes and retirement savings fell dramatically in 2008.
The depressed economic climate will cause unlucky graduates to take jobs in lower paying sectors, then gradually move back up to where they would have been, granted with worse credit. The fact remains, recent graduates will begin their careers with employers that pay less on average or have less room for growth.