New graduates face a terrible job market, but Teresa Hunter has advice on how to survive

Published on Saturday 14 March 2009 13:16

GRADUATES leaving college this summer or returning from gap years face among the grimmest job prospects on record. Even those who thought they had jobs are being asked to delay their start dates by a year or six months.

Openings for those leaving university have slumped sharply for the first time since the dotcom bubble burst, down 6%.

Banking and financial services, which traditionally offer training posts to a large number of graduates, are slashing their intake by nearly a third, according to the Association of Graduate Recruiters (AGR).

Some areas are seeing an upturn in demand, with engineering companies offering 10% of graduate positions. The public sector is also showing a 3% increase in places and will now account for 6% of graduate posts.

Construction has been hit hard with a 16% drop in vacancies, pushing their demand down to just 6% of graduates.

Salaries too are tumbling for new graduates. Throughout the UK they have frozen at 25,000, according to AGR, with many firms cutting starting pay by up to 8%.

Young lawyers are among the best paid, with starting salaries this year expected to be around 37,000. However, only the lucky few will enjoy these salaries. Many due to start work this summer or next have been asked to delay their start dates, and may now not pick up their first pay packet until 2011.

Management consultancy firms are also pushing back start dates, as are other employers. Some of those affected are being paid small retainers of perhaps 2,500 for six months or 5,000 for a year, which has allowed them to consider using the year profitably to travel or do charity work.

However, delaying their start will cause a blockage in graduate recruitment for the next few years. All of which means worrying times ahead for young people already crippled by debt. According to the National Union of Students in Scotland, graduates are coming out with debts of 16,000.

If you are graduating, just returned from a gap year or have had a job offer rescinded, how can you survive the coming months?

What is the next step?

If you can't find a career opening, alternative paid employment, even if part-time, will do most to boost your CV. According to AGR, two-thirds of employers value any kind of work experience over other options, with more than half impressed by graduate experience even if in an unrelated discipline.

Many recent graduates who fail to find employment opt for further study, yet this was the option least favoured by employers. Fewer than a third of recruiters said this gave applicants an edge. They were similarly unimpressed about taking time out to travel.

Another option is graduate internship. The Government is encouraging companies to offer recent graduates work experience for three months.

However, there are no details about how such a scheme might operate, whether applicants will be paid or not, and these may not be forthcoming until the autumn.

Finally, there is charitable work. Firms which have announced they will be making retainer payments to graduates whose employment date has been put back report being contacted by charities looking to employ young people for a year or six months.

What about my student loan?

Once your earnings hit 1,250 monthly, student loan repayments begin at 9% of gross earnings.

This is equivalent to 15,000 if you work a full year. However, repayments will be made on a month-by-month basis.

Interest is currently clocking up on unpaid debt at 2%.

Do I have to clear my overdraft?

Most students will have outstanding overdrafts which have been interest-free in student accounts. These will now be rolled over into graduate accounts, where the interest-free element starts to be phased out.

At Royal Bank of Scotland, for example, graduates can continue to enjoy 2,000 free credit during the first year after college, but this reduces to 1,500 in the second year and 1,000 in the third year. Interest above that is charged at 9.9%.

HSBC similarly withdraws free overdrafts, from 1,500 in the first year after graduation to 500 in year three, and charges 15.9% interest above that.

Lloyds TSB gives 2,000 interest-free in the first year, 1,500 in the second year, with 1,000 in the third year. Interest is charged at 16.8%.

Bank of Scotland has a slightly different approach and allows students to continue with their student account, enjoying 3,000 interest-free credit for a year after graduation. After that they must roll over into a normal current account, where interest is charged on overdrafts

Can I restructure my debts?

If you need longer to reduce your debts, or you need access to cash to begin a new life in a new city, you could take out a graduate loan.

RBS offers graduate loans of up to 9,950 with five years to repay, or up to seven years to repay if borrowings top 10,000. Interest is variable and currently charged at 3.8%. Repayments can be deferred for nine months, or 12 months if you have a firm offer of employment.

Lloyds TSB will lend between 1,000 and 10,000 with up to five years to repay at 9.9%, with the option of a repayment holiday for the first three months.

HSBC charges 8.9% on loans up to 25,000. NatWest fixes the rate at 8.4% on up to 9,950, which can be borrowed over five years or up to seven years if the debt rises to between 10,000 and 15,000.

Loans for further education

Many students will opt to continue their studies, but may have to borrow the money for fees and maintenance.

NatWest's Professional Trainee Loan is the most generous. If you are heading back to study for a profession, you can borrow up to 20,000, or 25,000 in the case of law, at a fixed rate of 7.9% or 3.8% variable. Repayments can be delayed until six months after your course is completed, and you have 10 years to clear the debt.

Eligible professions include barristers, chiropodists or podiatrists, chiropractors, dentists, doctors, opticians, osteopaths, pharmacists, physiotherapists, solicitors and veterinary surgeons.

Barclays Career Development Loan is interest-free while you study, although repayments must begin during the course. You can borrow between 300 and 8,000. Interest, which is charged from one month after the course ends, is set at 7.4%.

With Lloyds you can again borrow up to 10,000, and delay the first repayment for four years. Interest accrues at 11.9%.

Can I claim benefits?

While looking for work, a 16 to 24-year-old can claim 47.95 weekly Jobseeker's Allowance. They may also qualify for housing and council tax benefit if their income remains low, even after getting a job.

If your wages are low when you begin work, you may qualify for Working Tax Credit.

Tax

Any earnings will be subject to tax and national insurance, with income tax biting from April after the first 6,475 of earnings. It starts at 20% for the first 37,400, rising to 40% thereafter.

National insurance is deducted at 11% on any weekly earnings above 95 and up to 844, when it falls to 1%. If you work for the whole year this means you lose a further 11% of earnings above 4,940 and 1% above 43,888.

Where firms pay retainers to students, HM Revenue & Customs said these would normally be taxable.

Three jobs help pay for studies

SIMON Doolin admits life has been a financial struggle while funding himself through an MSc at Aberdeen University. He is bracing himself for when the course ends this summer and it comes to getting a job, writes Teresa Hunter.

The good news for him is that the area in which he wishes to work, medical science software engineering, is expanding. But he knows competition for jobs will be tough.

Simon completed a first degree in medical science in 2008, and although he looked around for work at that point, he opted for further study. "It became clear that the kind of work I wanted required further qualifications, and employers expected you to have them," he said.

Fearful of drowning in debt, he decided against taking on career development loans. Instead, he is juggling his MSc with three jobs.

Simon, 21, says: "I work in the university as a receptionist, in a shop in the evenings, and also have a job helping out with disabled students. Juggling time and money has been a struggle, but I'm hoping it will all be worth it."

"There are jobs, but I will face very serious competition from graduates who left university a few years ago. It's not going to be easy, but I will give it my best shot."