Today’s job market holds negative prospects for degree holders

By: Eric Blix, Staff Writer

via Flickr, Will Hale

With the recent possibility of a government shutdown narrowly averted, the gridlock in Washington makes the job outlook for new college graduates seem grim. Despite president Obama’s recently proposed jobs program, which may be prenatally nixed by austerity-focused Republicans and right-leaning Democrats in both houses of congress, the general feeling is bleak.

New figures from the Department of Education show that the number of students who have defaulted on their federal loans increased dramatically over the last two years. As the Minneapolis Star-Tribune reports, the number of students who had entered repayment and were at least 270 days behind on their payments rose from 11.2 percent to 15 percent by the time the financial markets crashed in October 2008, an increase of approximately 38,000 borrowers.

The Department of Education cites private, for-profit colleges as the main source of this trend, though the default rates of those who graduated from public as well as private, not for profit institutions have also gone up. Additionally, the Department of Education calculated that the percentage of students who defaulted after two years rose to 12 percent in Fiscal Year 2009.

That is a lot of unpaid debt, and it raises the question: do we have a lost generation on our hands?

Even with actions taken by the Obama administration to provide more flexibility in repayment options, there are numerous factors that should cause concern. The most pressing of these is the stagnation of job creation. In essence, graduates are unable to pay their loans because they don’t have jobs.

What’s more, the consensus among politicians and the beltway punditry is that long term deficit reduction is the only solution to a short term unemployment crisis. This translates into an outright refusal to address the problem of unemployment as well as its causes, which means that deficit-centered power holders run the risk of turning what should be a temporary unemployment problem into an established norm.

This is especially troubling to those with a bachelor’s degree or higher who are finding it difficult to gain professional experience. The New York Times reports a study conducted by Rutgers University which stated that by last spring, a mere 56 percent of the class of 2010 had held at least one job since graduating. Only half of these jobs required a college degree. Of these jobs, the median salary has decreased by 10 percent since 2006, from $30,000 to $27,000.

With mounting debt and a widespread lack of professional experience, the question is raised whether this group of workers will be desirable when the job market improves. With the current batch of new graduates removed from their educational training by several years or more by the time the job market recovers, as well as an increasingly rapid need for technical knowledge to thrive in the U.S. labor force, employers may be more apt to hire fresher graduates who are better trained and may demand smaller salaries. This scenario would leave tens of thousands of educated workers out of their respective fields, working in jobs that don’t utilize their skills and knowledge.

What this means for the nation as a whole is troubling. As it stands, the need for new degree holders to work low-paying or menial jobs is displacing the people who have traditionally filled these roles, thus driving them out of the job market entirely. The possibility of an entire generation of overqualified people performing low level work also creates a scenario of pandemic unemployment for people without college degrees. Consequently, the populations most affected by such a labor shortage would be the ones that are most economically vulnerable—immigrants, minorities, and the elderly.

This situation would also signal further depletion of the U.S. middle-class. The high levels of unpaid student debt would require larger portions of shrinking salaries to pay back, thus diminishing expendable income, as well as money allocated for basic living expenses. This would all accelerate upward wealth redistribution, widening the gap between rich and poor, and ultimately hurting the economic health of the nation at large. And while this is all hypothetical, it’s a realistic outcome of a trend that is currently in full force.

ARB Team
Arbitrage Magazine
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