Class of 2015: Most Indebted Ever

The graduating class of 2015 may be partying like it’s 1999! A study earlier this year from Michigan State University found that employers have been recruiting new college graduates at levels not seen since the go-go years of the technology boom and Y2K (remember that?). With economy and the job market picking up steam, hiring of college graduates this year was expected to be up by 16 percent from a year ago, though the National Association of Colleges and Employers puts the increase at 9.6 percent. Either way, the market for recent grads is improving and more than half of employers are offering signing bonuses, the highest percentage in five years.

Of course it is easier to get a job with a degree. The national unemployment rate stands at 5.4 percent and is 4.8 percent for recent college graduates and 2.7 percent for all college graduates. With that degree comes increased earnings potential: the Federal Reserve Bank of San Francisco found that the average U.S. college graduate is likely to earn at least $800,000 more than the average high school graduate over her working years.

All of this good news about college comes with an asterisk: the ability to land a good job out of college often depends on a graduate’s major. According to a report by the Georgetown University Center on Education and the Workforce, “Recent college graduates who major in arts, psychology, and social work earn $31,000 per year, only $1,000 more than the average high school educated worker. By comparison, recent graduates who majored in engineering earn $57,000 per year, almost twice as much as the average high school graduate.”

For families that are spending tens and even hundreds of thousands of dollars, the Georgetown report begs the question: What if my child is not interested in the STEM (Science, Technology, Engineering and Mathematics) majors? While you can’t force college students to study what you believe is most prudent for them; if they are likely to head into a liberal arts field with a lower earning potential, you need to steer them into a cheaper undergraduate education (community and public schools or private colleges that offer loads of grants) and to keep a lid on total borrowing.

Many families can only get their kids through college by assuming loans. That’s why total outstanding student debt (federal and private) reached nearly $1.2 trillion at the end of the first quarter of 2015. The class of 2015 is only going to add to that staggering sum: its graduates are the most indebted ever. The average graduate with a student-loan owes just over $35,000, according to Edvisors. Adjusted for inflation, that’s more than double the amount borrowers had two decades ago. Unless these graduates are about to land one of those plum STEM jobs, they could be paying off their loans for decades. (The average student repays her college debt within 20 years of graduation.)

Students and their families need to strike a balance between the increasing necessity of completing a college education (earlier research from Georgetown predicted that the share of jobs requiring post-secondary education will likely increase to 64 percent by 2020, a big jump from 50 percent in the 1970s) and the decision to assume tens of thousands of dollars of loans to earn that coveted degree.

One way to keep debt levels in check is to only assume a total student debt load that matches what you think you (or your prospective graduate) will earn in the first year of work. If you’re going to be an engineer or software designer, you can borrow a total of $50,000 to $60,000, twice the amount of an art history or education major. It may not seem fair, but to navigate the current labor market effectively, without draining current and future resources, this rule of thumb may keep the scales balanced.