Patrick Ow shares problems and challenges for graduates looking for appropriate-paying jobs; salaries don’t even pay for the cost of their education. That is if they can even find a job – leading people to wonder if a college degree is even worth it.
60. Graduates Struggle to Find Their First Job
A college or university degree has lost its value as graduate numbers have exploded despite the significant cost to both students and the National Budget. Grattan found that many recent “relevantly-qualified graduates” find it difficult to get full-time employment.
The 2015 Graduate Outlook Survey found that 68.8% of employed graduates had found their employment within six months of commencing their job search and 16.8% found their role in less than a month. However, around one in five (20.5%) graduates had taken more than twelve months to find their role.
Research by the National Institute of Labour Studies found that between 2008 and 2014, the proportion of new university graduates in full-time employment has dropped from 56.4% to 41.7%.
The Australian Productivity Commission found that employment outcomes for full-time graduates have been getting worse, and many employers are not satisfied with the quality of recent graduates.
A quarter of recent graduates believed that their degrees added no value.
Underemployment ratio among graduates was at 20.5% in 2016 compared to about 9% in 2008. Graduate starting salaries have also been growing slower than wages across the broader economy declining from nearly 90% of average weekly earnings in 1989 to about 75% in 2015.
Recent university graduates are struggling to find full-time work with one in five employed university leavers unhappily working part-time in 2017, according to Canberra Times.
MyBusiness reported that just 3% of Australian CIOs believed that the education system can meet the needs of the current IT demands of the employment market, worsening an already chronic shortage of skilled IT professionals.
Here’s something we can relate to by Sheila:
My oldest daughter Rebecca just graduated from her undergrad at university. I was up visiting last week, and she started rattling off all of the jobs that her fellow graduates now had: manager at a fast-food restaurant; manager at a chain retail store in a mall; working in another chain retail store; reception for a small business. Not a single person had a job that actually required a university degree. Those that graduated with an actual profession, like nurses and teachers, can’t get jobs in their fields either.
The Wall Street Journal reported the troubling results of the College Learning Assessment Plus test administered in over 200 colleges across the U.S. More than half of schools and at least a third of seniors were unable to make a cohesive argument, assess the quality of evidence in a document, or interpret data in a table. At some of the most prestigious flagship universities, test results indicated that the average graduate showed little or no improvement in critical thinking over four years.
A well-known university in Australia admitted that its degree did not produce job-ready accounting graduates due to the sheer volume of knowledge and skills required to competently do today’s job, according to MyBusiness.
This means that colleges and universities are not equipping graduates with relevant technical and interpersonal skills required by today’s employers. When this happens, graduates will find it hard to land their first job. In addition, many people are drowning in student loan debts with little to show, including not having jobs or jobs relating to their studies.
There is nothing wrong with following one’s dreams by way of having a college or university degree. However, a wrong degree might actually turn out to be a nightmare.
61. Graduates Are Debt-Laden Even Before Working
According to Forbes, more than 43 million Americans carry a total of $1.3 trillion in student loan debt with an average of $25,000 for public school graduates. Marketwatch reported that the typical 20-something student is weighed down by six-figure debts as he or she looks to start a budding career and adult life.
The Millennial generation knows all too well about the financial burden of college debt. Findings from the LIMRA Secure Retirement Institute revealed that Millennials who start their careers with $30,000 in student loans could have $325,000 less in retirement savings compared to their debt-free peers. This is a fairly typical debt load for students. In 2015, the average student loan debt totaled $33,000, compared to $10,000 in 1990.
In comparison, The Australian reported that the median student loan debt in Australia is sitting at $25,000. According to the Parliamentary Budget Office, student loans will increase from $1.7 billion in 2015-16 to $11.1 billion in 2025-26. The number of students getting student loans has also grown by 11.2% annually over the past five years from 308,000 in 2010 to 522,000 in 2015.
These student loan debts can hang around for a long time if not managed appropriately. According to the Huffington Post, nearly 70,000 Americans over the age of fifty are living in poverty as their social security benefits are cut to pay off student loan debts.
The Government Accountability Office found that about 114,000 student loan borrowers over fifty years old are losing out on a portion of their Social Security benefits because of an old student loan. The number of borrowers over age 65 facing this predicament has increased 540% over the last decade.
Older Americans who have been wrestling with student loans over the past five years have saved $182,000 less for retirement. This will result in a $1.3 trillion retirement savings gap by 2021, according to AARP’s 2017 Financial Innovation Frontiers study.
Some Americans still have mortgage debt lingering over their heads during retirement. They may have borrowed money against their home to loan money to their children. The Consumer Financial Protection Bureau reported the percentage of those aged 65 and older carrying mortgage debt has risen from 22% in 2001 to 30% in 2011.
The problem is compounded when students borrow money to study a course that is becoming irrelevant to employers or reshaped through automation.
News reported that big Australian employers are going cold on university degrees, leaving students to wonder if their qualifications are worth the debt and extra study. It’s an unfortunate case of over-education of graduates, according to the Royal Statistical Society.
The American Institute of CPAs revealed that 68% of adults with college loans or whose children have loans said that they regretted how they financed their own or their children’s education.
Debt isn’t always terrible.
In fact, debt can be a wise investment if it leads to a significant increase in future earning potential. The trick is researching for good career options that will meet future employers’ requirements. It includes understanding how to reduce what is spent on college degrees. Financial aid, scholarships, technical degrees, and community colleges may help reduce the impact of increasing education costs.
62. Future Employees Are Not Earning as Much
When the college or university students land their first jobs, they are most likely paid less than their parents. USA Today reported that Millennials earned 20% less than Baby Boomers did at the same stage of life.
The median incomes for younger groups are lower in 2016 than in 1966, according to Flowingdata. The change is most noticeable for those without a bachelor’s degree.
With the increasing costs of housing and daily expenses, it is no surprise that Millennials and Generation Ys are finding it difficult to save and invest. They also tend to stay longer in family homes just to make ends meet.
When it comes to employability, cost, and earning potential, a trade or an apprenticeship can often be a better choice or alternative than a college or university degree for some people. This also depends on the individual’s personality.
In Australia, News reported that the median annual starting salary for a new bachelor’s degree graduate younger than 25 and in their first full-time job was $54,000 in 2015. New electricians on award rates start on $56,000. Many in the construction industry can earn as much as $80,000 to $91,000 one year straight out of their apprenticeship.
Salaries for U.S. trade school graduates aren’t that much of a drop-off compared to a four-year college degree. According to the National Center for Educational Statistics, technical and trade school jobs have a median annual salary of $35,720. This varies heavily based on particular industries and experience levels. Earnings for bachelor’s degree holders are predicted to be roughly $46,900, amounting to an annual difference of $11,180.
However, trade schools only take an average of two years to complete versus four years for colleges and universities. That amounts to an additional two years of income for trade school graduates or $71,440. Factoring in another $70,000 in costs for many students who take an extra year to graduate from college, trade school graduates can be over $140,000 ahead at the get-go.
The return on investment for graduating from a vocational college, trade, or technical school is often very good since graduates are being taught marketable skills and relevant technical abilities that employers need instead of just theory and head knowledge. Given that time is money, why spend extra time in school, college, or university when employees can get trained and start making money in a good career sooner? Without a degree like a bachelor’s, they are still able to out-earn many four-year college graduates.
To support this alternative approach to college and university education, economists at BERL crunched the numbers and found that people who get apprenticeships end up just as financially secure as their academic counterparts. They also have more of their earnings come sooner.
This is an extract from my ebook, Shocking Secrets Every Worker Needs to Know: How to Future-Proof Your Job, Increase Your Income, Protect Your Wealth in Today’s Digital Age (Kindle Edition), available from Amazon.
This is Part Eight of an eight-part series.
Part Seven- The Problem with Planning for Retirement