Unemployment and Student Debt: Is College Worth its Cost?

The Federal Bureau of Labor Statistics paints a rosy picture for prospective college graduates. In 2010, while the federal unemployment rate averaged a discouraging 9.6%, unemployment figures fell to 5.4% and 1.9% for bachelor’s degree and PhD holders, respectively. This trend continues in 2011, but current college students should not be misled by this sugar-coated prognosis.

In calculating unemployment figures, the Federal Bureau of Labor Statistics does not account for underemployment. Therefore, a PhD in physics working at McDonalds is represented in federal statistics as fully and gainfully employed. In January of 2011, 1.94 million college degree holders under the age of thirty were underemployed in such a manner.  In fact, according to statistics presented in the New York Times, only 55.6% of college graduates under 25 years of age are currently employed in positions that require college degrees. Many recent college graduates make only marginally more than peers without a degree.

It has always been true that a college education takes years, even decades, to pay for itself. But in today’s economic climate, those who pursue higher education are at a financial disadvantage for longer periods of times. This is especially true for those struggling to pay off loans.

Concerned about my own financial outlook, I recently made a trip to Washington University’s Student Financial Services in the hopes of negotiating a way to limit my own loan burden. The financial officer I met with spoke to me candidly, and explained that the average Washington University student who chooses to take out loans graduates with around $22,000 in debt. Broken down over a thirty-year period, monthly payments for this amount come to a few hundred dollars. These payments are manageable if one is employed, and working at a job that pays well. But for students forced to settle for jobs that pay poorly and do not do their college degrees justice, keeping up with payments is difficult. For the 11% of students still unemployed within the first three years after graduation, it can be nearly impossible.

Just under one in ten recent college graduates have defaulted on loans in the past few years. Consequences of defaulting on studentloans include legal action, poor credit, garnished future wages, and myriad extra fees. Even filing for bankruptcy does not cancel or decrease debt. Students who default on loans can be sued indefinitely by lenders, or can be forced to come up immediately with the borrowed amount in full—an obvious impossibility if making monthly payments is already a hardship. Every year, millions of students take out loans without thinking seriously about future obligations, and many of these same students find themselves four or five years later facing severe personal, financial, and legal consequences.

Amidst federal budget cuts, several programs that mitigate student debt have come under threat and one can visit their website to get advise on how to avoid falling into debt. The Pell Grant Program, which provides vital tuition support for students from low-income backgrounds, is held particularly sacred by education activists and works as a gauge of federal commitment to higher education. At the current rate, Pell grants reduce the loan burden of eligible students by up to $22,000 over four years.

Congress is now in the process of drafting the spending budget for the 2012 fiscal year, and Pell Grant funding is being reconsidered. The Senate has voted to maintain full funding for Pell Grants, but the House of Representatives is in favor of restricting eligibility for the program to reduce costs. If the House’s plan passes, some students will still receive Pell Grants in their full amount, while others will receive nothing at all. It will likely be months until a compromise is reached, and in the meantime the educational futures of students currently receiving and dependent upon Pell Grants remain up in the air.

Students today face an uncertain future in terms of loan repayment. One thing, though, is clear: a reduction in student debt, which now surpasses total credit card debt, would free college graduates to invest billions more dollars in the US economy. This boost would create more jobs for young graduates, further reducing national student debt and thus stimulating a virtuous circle that would have very positive implications for the US economy.