Highly Educated and Unemployed? Here’s How to Bounce Back Financially

An advanced degree might boost your earnings, but it can’t protect you entirely from a bad job market. According to a new study, close to 20 percent of those currently unemployed are former high earners with advanced degrees – and many are also still stuck with student loan debt. This new problem is creating what some call a new class of Americans who are “downward financially mobile.” If you’re among this group, here’s what to do to better your situation.

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Recently, PayScale spoke with bankruptcy attorney William Waldner about what it looks like when you become unemployed after earning an advanced degree — and how you can bounce back financially.

PayScale: What is the typical student loan debt for someone with an advanced degree
William Waldner: The average debt for a graduate student is $57,600.

PayScale: What happens to student loan debt when you become unemployed?
Waldner: If you become unemployed, you can get a deferment for up to three years. If you’re not eligible for deferment, you can get a forbearance. A forbearance is similar, but interest continues to accrue.

PayScale: What is the average salary for someone with an advanced degree — and how much does unemployment really help these graduates cover living expenses?
Waldner: The average starting salary for someone with a master’s degree is slightly above $53,000. In my experience, unemployment does not help these graduates enough. They almost always are forced to rely on help from friends and family.

PayScale: Following that question, how can these graduates shift expenses around while unemployed? What are their options?
Waldner: To lower expenses dramatically, these graduates can get a roommate, lower cellphone plans, rely more heavily on public transportation, and cut their food budget.

PayScale: If a graduate finds themselves accruing more debt while being unemployed, how do they bounce back from this? How can they ultimately get their finances back in order and back on track?

Waldner: The longer the graduate stays unemployed, the worse the problem gets. I advise my clients only to use credit cards on an emergency basis. They sometimes can bounce back, but I would say that often the road to recovery is as many as 10 years after finding gainful employment.

PayScale: When, if ever, is declaring bankruptcy an option, and what should people do before they get to that point?
Waldner: Bankruptcy is an option if the student has accumulated substantial credit card bills as a result of being unemployed. Sometimes, if the unemployment office continued to give benefits after the person became employed again, the amount owed can be discharged as will. I have a few clients who use bankruptcy to defer/forebear student loans. (In a chapter 13 repayment plan student loan payments are not required to be made for three to five years.)

PayScale: What kinds of debt won’t bankruptcy erase?

Waldner: Bankruptcy is an option when debt or payment plans are becoming insurmountable. If someone is making the minimum payments each month and getting nowhere, it might be time to “stop the bleeding.” Before filing for bankruptcy, people should honestly evaluate their situation to find out if there is another way they can pay their debt back. Most bankruptcy attorneys offer free consultations to explore all options, including bankruptcy.

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