Grads in the Job Market Face Toughest Test Yet

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College graduates may not have such a happy homecoming this May.

Without a job and deep in debt, a good number of those under age 25 have been hit hard by the economic downturn. To make matters worse, the tough job market shows few signs of improvement.

Indeed, the bulk of job losses have come from those aged 16 to 25, with 984,000 jobs lost between 2000 and 2001, according to a 2002 study from Northeastern University. Those under 25 years old accounted for 53% of all job losses last year, even though this group composes just 15% of the population. The study concluded that if employment among older adults had declined by this much, "analysts would have called this a depression."

"Students tend to have the toughest time right out of college," says Jacqueline King, director for the American Council on Education's (ACE) Center for Policy Analysis. For one, new graduates start out making a lot less. People aged 18 to 24 with a bachelor's degree make an average of just $32,101 according to U.S. Census Data, $12,000 less than those aged 25 to 29 with the same education level.

Appetite for Destruction

While graduates begin with less, they also have hefty bills to pay. A study from the U.S. Public Interest Research Group says that 39% of all student borrowers graduate with unmanageable levels of debt, with monthly debt payments that exceed 8% of their monthly income.

In just eight years, the average student debt has doubled to $16,928, well above the $9,188 per student average in 1993. Over this span, the average monthly student loan payment for a student at a public university jumped 139%, from $75 to $179.

One reason behind the increase is that more students have access to federal financial aid loans since the government removed need-based restrictions in 1992.

But costs are rising, too. "The prices students pay for tuition and living expenses have gone up," King says. In fact, the price of attending a four-year public or private university has increased 27% in the past decade, according to the College Board.

This cost is only compounded by the fact that students are racking up their credit card bills. According to the ACE, 80% of dependent undergraduate-degree recipients had a credit card, with almost half carrying an average balance of $1,600 each month.

"We're talking about relatively young people walking into the rest of their lives with staggering levels of debt. That becomes an inhibitor to becoming an adult," says Ivan Frishberg, spokesperson for the State PIRG's Higher Education Project.

As a result, a record number of people under age 25 filed for bankruptcy in 2001. More than 100,000, according to a study from Harvard University law professor Elizabeth Warren. "These young people graduate with middle-class aspirations and expectations," she says. "But their balance sheets put them amongst the poorest of the poor."

Welcome to the Jungle

But unlike three years ago, when companies courted graduates with stock options and signing bonuses, the class of 2002 faces a chilly reception when it enters the job market in May. Employers say they plan to hire 36.4% fewer graduates than they did last year, according to a survey from the National Association of Colleges and Employers (NACE).

Furthermore, bonuses are scarce and salaries are sliding. From 1998 to 2001, the average salary for an economics or finance major rose 17.9% from $35,219 to $41,522, according to the NACE. But in the past year, that salary has fallen 3.6%. "These kids watched their friends graduate into a wonderful economy, now all of a sudden, in the course of a year, here we are. Everything has changed," says Camille Luckenbaugh, author of the NACE survey.

And the job market won't likely improve soon. Indeed, many corporations are waiting to gauge the economic recovery before extending employment offers. "Business owners are going to be cautious about bringing too many people on until they know business is for real," says John Challenger, CEO of the outplacement firm Challenger Gray and Christmas.

If this recovery is anything like the one in the early 1990s, then the outlook isn't likely to improve. "

Back then, we had a jobless recovery. For the first 15 months, unemployment continued to get worse, until June of 1992 when it peaked at 7.8%," Challenger says. "It seems likely we could see a repeat scenario."

Indeed, spring's weakness may not let up anytime soon. Luckenbaugh says that 44% of employers said they were "unsure" of hiring needs in the fall, with 12% saying they'd hire fewer graduates. Only 13% said they'd increase hiring. "In this climate, people look at hiring plans on a daily basis. Employers don't want to get into a situation where they have to rescind offers. There's definitely a lot of hesitancy," she says.

Plus competition: May graduates will battle other young and unemployed people for the same entry-level jobs. Unemployment for those aged 20 to 24 is 10.7% -- the highest level since 1998. Overall, nearly 8.1 million people of all ages are looking for work, according to the Labor Department.

The bottom line is that without jobs, college grads face a greater risk of bankruptcy, Harvard professor Warren says. "Last year

the number of bankruptcies was a record, and this year will be another one," she says.

"If grads have mounting debts and no income, their first act as an adult may be complete financial collapse," Warren adds. "There's a cheerful thought on graduation, isn't it?"