Student Loan Debt Traps Grads in Dead-End Jobs

Economy forces grads to stall career plans
Monday, October 11th, 2010

College comes with myopic demands – to pick the right school, to take challenging and rewarding classes, to make connections. What will graduation bring into focus?

With the country still mired in economic woes, college graduates are on the losing side of a national game of musical chairs, as they run up against a labor market with few openings.

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Recent New School graduate Garret Hurley works as a waiter to pay off student loans. Photo by Courtney Stack

“I don’t know what I expected,” said Lang grad Garret Hurley, who received his B.A. in digital media last December but now, almost a year later, still waits tables. And he may be lucky. A new study by the Economic Policy Institute shows the unemployment rate for recent college graduates up from 5.4 percent in 2007 to 9 percent in 2009. Worse, according to the EPI, these statistics “do not indicate whether they are employed in a job that matches their skill level.” They estimate that grads working outside their field will earn 30-35 percent less.

According to Yale economist Lisa Khan, this is a big problem. Those who compromise early can’t shift into better jobs after the economy picks up. Her data suggest that a higher unemployment rate at graduation means lower income immediately after graduation and long afterward. Each 1 percent rise in unemployment will cost students 6-7 percent of their income the first year, and 2.5 percent fifteen years out. That means that with unemployment at 9.6 percent, students graduating today will make 30-35 percent less than if they had graduated in 2006, when the unemployment rate was 4.6 percent. Students who hoped to earn $35,000 per year after graduation, must readjust their expectations to around $23,000--with small returns lingering for years.

It gets worse when considering student loans – which, according to the Department of Education have surpassed credit cards as the largest source of private debt. Neighboring New York University doles out the most total debt at $660 million, according to the DOE. But looking at the rate per student, NYU’s median student debt, $28,649, is not far ahead of The New School’s $23,489. Loans can be a crushing burden on students who need to take an unpaid internship, especially in New York. “If I had no loans, I’d be sitting back on my haunches,” Hurley said.

With loans topping $20,000, Hurley is one of many graduates struggling to jump-start his career. “It can take a year,” he said, gravely, when asked about being hired through an internship. With his loan payments over $400 a month, working for free seems a prohibitive luxury. “Can you sacrifice 15, 20 hours a week?” So, Hurley resigns himself to the ironic trope common to graduates in the Great Recession: waiting tables full-time to make payments on a degree that he can’t afford to use.

Rosanne Sonatore, director of career development at The New School, has a name for Hurley’s occupation: “survival job.” She suggests the negative estimates for those working outside their fields should discourage students from settling – even in hard times – but “encourage those who stay true to their cores.” Lately, she finds herself “pretty backed up in individual counseling.” Offering a blog, networking sessions and meetings with alumni, Sonatore believes a visit to her office increases a student’s viability in the market. “You cannot be isolated in this,” she said, encouraging students to be dynamic, sell themselves, and focus on skills over pay. Her problems, however, are all too familiar. With limited staff, space and communication, she doesn’t receive as many students as she’d like. “We could definitely do more outreach if we had more resources,” she said.

The ugly combination of high debt and unemployment is forcing more and more students to default on their loans. According to The New York Times, student loan defaults have increased between 2006 and 2008, from 5.2 percent to 7 percent. While The New School’s default rate is still low, moving from 2 percent to 2.8 percent over the same period, it remains higher than neighboring NYU’s (1.5 percent) and many similar schools from the region. Only Bard, out of all the schools the New School Free Press looked at, had a higher rate of default in 2008.

Yet, for all of the depressing trends affecting college graduates, there are some that may bring hope to all the new B.A.’s. The unemployment rate for those holding a degree, new and old, has held steady around 5 percent, well below the national rate. And according to a 2009 study by Northeastern University, education – above all else – is still the number one determinant of lifetime economic success.

When thinking about his circumstances amid the news of the Great Recession, Hurley admitted, “It’s scary when I hear the realities.” With thicker skin, he has resigned himself to a less hopeful future.

“I’m worried but everything is – ” Garret said, pausing briefly to weigh his words. “Well, I don’t think everything is out of my control.”

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Federal loans or private loans?

Mr. Hurley's $20,000+ in student loans, at monthly payments of over $400, may be adjusted if he has federal loans. Under the federal student loan system, repayment options include Income-Based Repayment which limits monthly payments to a percentage of income. Unfortunately, if he has private student loans (and he shouldn't have private loans if New School's financial aid office had properly counseled him on his options because people at all income levels qualify for federal loans), he may very well be out of luck.