42% of New College Grads Are Underemployed as AI Rewrites Hiring

The underemployment rate for recent college graduates has reached 42%, meaning college graduates aged 22 to 27 are working jobs that don't require a bachelor's degree at levels well above the 33.7% rate for all college graduates, according to the Federal Reserve Bank of New York.

The numbers frame a job market that has shifted sharply against the youngest degree holders. Unemployment for the 22-to-27 bracket stood at 5.7% as of June 2026 — a full percentage point higher than two years ago for the same cohort and significantly above the national average. The unemployment rate for all young workers was 7.2%.

At the center of the shift sits artificial intelligence. Employers are deploying AI to screen and review applications, and the earliest stages of hiring are moving into automated systems. Sixty-six percent of recruiters said at the beginning of 2026 that they planned to increase their use of AI for pre-screening interviews, according to LinkedIn research. On the other side of the table, 81% of job seekers said they had used or planned to use AI in their job search.

Students are adapting — with mixed confidence

"AI is really changing the motivation that students have going into the job market. It's changing the hiring process, how people are formatting their resumes and just overall, how students are approaching life post-grad," Michela DiLorenzo, a student at Seton Hall and student editor at The Setonian, told CNBC's Jon Fortt on Friday.

DiLorenzo has covered career sentiment on her campus. Her reporting found that post-graduation plans for many of her peers have changed as they enter an uncertain market. Rather than immediately pursuing graduate degrees, some are taking summer jobs or other work to save money while they weigh next steps.

Her reporting also captured the grind. One Seton Hall student said she received only two interviews after submitting 50 applications. Another said he had applied to as many as 150 jobs, describing the process as impersonal and discouraging. Students say they still want meaningful feedback and a clearer path to being seen by an actual person.

Students are tailoring resumes to specific job descriptions, emphasizing relevant skills and using language aligned with each position — a direct response to trying to understand how their materials will be evaluated before reaching a hiring manager.

The data shows they are doing so with concrete evidence rather than keywords. Handshake, the early-career platform that has worked with OpenAI on tools to build student tech skills, found that graduating seniors in 2026 mentioned AI skills on their resumes at twice the rate of the class of 2022. Its analysis found 74% of those mentions were tied to real-world projects rather than coursework.

"Early talent is already starting to answer this shift by sharing real projects directly on their Handshake profiles, turning AI from a claimed skill into demonstrated capability," Handshake wrote in a blog post. "The data tells us that early talent isn't being displaced by AI—they're being amplified by it. ... in an AI-driven workforce, resumes alone aren't enough."

Employers want AI skills; many students don't care

The demand side is moving fast. The National Association of Colleges + Employers says its recent research shows AI skills cited in 16.5% of job descriptions in the spring, up from 10.5% last fall. Overall, 28% of employers say they are seeking early career talent who can use AI in their work, according to NACE.

But NACE flags what it calls a "striking disconnect" between some members of Gen Z and the labor market. "Employers are increasingly asking graduates to be ready for AI, while a significant portion of students are asking whether AI deserves a place in their work at all," Shawn VanDerziel, NACE president and CEO, stated in the research release.

The gap is measurable. In NACE's 2026 Student Survey, close to one-third of graduating seniors said AI skills would be "of little or no importance to their future career." Over half said they were not building AI skills for the future and were not using AI in their job search.

"Right now, it is too early to tell what the long-term impact of AI will be on early career talent, but it is obvious that students have mixed expectations and views on the ways AI will impact their careers," VanDerziel stated.

Is AI actually killing entry-level jobs? The evidence is thin

Concerns that AI is eliminating entry-level positions remain, in the NY Fed's characterization, preliminary. The Federal Reserve Bank of New York has found an overall slowdown in hiring in recent years, but not one specifically concentrated in entry-level jobs with higher AI exposure.

Based on its study of job postings, the NY Fed wrote: "while AI may be contributing to recent labor market developments, it is not the main driver of the slowdown in hiring."

Its survey work with employers found that they "mostly intend to incorporate AI mainly via retraining, with limited effects on hiring."

Labor market data from Revelio Labs points to a subtler dynamic. Evan Sohn, founder and CEO of the firm, told CNBC's Kelly Evans that companies adopting AI faster are also hiring faster than their peers. That doesn't help recent graduates much, he said, because those same firms are prioritizing senior-level roles over junior-level positions.

"AI is really making it difficult for the entry-level people to get in there. ... The 22- to 25-year-olds are really getting lost in the shuffle," Sohn said.

His advice to all job seekers is to "be AI-forward."

"Be ahead of everybody else when it comes to AI," he said.

The stakes are straightforward. Entry-level hiring is the mechanism that converts degrees into careers, and the current data — 42% underemployment, rising cohort unemployment, and employers demanding AI fluency that much of the class of 2026 says it doesn't plan to acquire — suggests the mismatch between what employers screen for and what students present will shape early-career outcomes for years.