The former princes and princesses of Wall Street, now unemployed, are currently making an exodus - from Wall Street to graduate school. As the ranks of the unemployed grow nationwide, especially in white-collar sectors of finance and technology, people are turning to the Ivory Tower for refuge.

Recent unemployment data only makes this transition more likely. The Labor Department reported last week the unemployment rate jumped to 7.2% in December. (Most economists estimate the actual figure is closer to 13%). New York City, the breadbasket of the financial system, may lose 243,000 jobs during this downturn.

The application deadline for most business schools just passed, and observers are already seeing an influx of young professionals. This isn’t unique to the present recession. All four previous recessions since 1980 corresponded with an increase in the number of Graduate Management Admissions Tests (GMAT) that were taken, according to the New York Times. The test is used for admission to MBA programs.

At Kaplan, which prepares graduate school applicants worldwide for exams like the GRE, the director of graduate programs recently said, “There has been livened interest in all degree programs. We’re seeing about a 45% growth (since September) in interest in preparing for admissions,” along with increased attendance at free events, practice test events, and admission seminars.

There are several things to consider in applying to grad school: your industry, your long-term career goals and your financial situation. In addition, being unemployed for an extended period of time can exact a psychological toll.

“People begin questioning their value, often for the first time in their lives,” Jeffrey Heath, the managing director of a Manhattan-based recruitment firm, told the New York Times recently. “Knowing you’re working toward something will make you feel better.”

According to people I spoke to who are applying to grad school, two main reasons stood out: to enhance their credentials in their current field while seeking refuge until the economy improves, or to reinvent themselves in a new profession.

Craig Muhlrad, 26, a college friend of mine, echoed the former reason. He was an associate at Citigroup (C) for more than 2 years until he, and half of his team, were laid off 2 months ago. (All worked in CDOs and credit derivatives.) He was one of about 52,000 laid off in 2008, according to the company.

As of Tuesday, Citigroup was unraveling, set to separate into two units and selling off businesses it has acquired over the last decade. Citi has racked up $28.5 billion of net losses over the past five quarters, mainly from mortgage-bond trading. It now faces huge credit-card losses. The government assistance -- $45 billion of US government funds, federal guarantees on $301 billion of debt -- isn’t enough to save Citigroup. It seems the obvious next step is nationalization; shareholders will likely be wiped out.

Muhlrad recently applied to joint MBA/JD programs for the fall. He said he expects graduate school to make him more competitive and improve his job prospects. He mentioned that a dozen or so former co-workers of his are doing the same.

“I think one big reason people are going back to school is just for hope,” he wrote in an email. “People are leaving jobs in which their responsibilities have completely disappeared and their futures are bleak.”

I think this raises an important question, in particular for the young, former denizens of Wall Street: After 2 years of business school, what will be left in finance for them to return to?

The answer might be government jobs - by then, banks will be under its auspices.