Four years ago, in one of its taxpayer subsidized research papers, the San Fran Fed asked “is it still worth going to college“, looking at the trade off between the “investment” of tens of thousands of dollars in student loans relative to the pick up in earnings potential over one’s lifetime. It found that the answer is “yes” because “the value of a college degree remains high, and the average college graduate can recover the costs of attending in less than 20 years.” In other words by the time one is 42, one’s student loans will be paid off, assuming of course that one can still find a job. And, staying in this idealized world, the difference between earnings continues to grow “such that the average college graduate earns over $800,000 more than the average high school graduate by retirement age.”
Four years later, the New York decided to rerun the same analysis, which it described in a recent blog post “The College Boost: Is the Return on a Degree Fading?”, and came to a starkly bleaker conclusion.
As DataTrek’s Nick Colas summarizes the Fed’s study, the net income and net worth benefits of a college or grad school degree are rapidly diminishing. Specifically, the NY Fed economists looked at two broad demographic cohorts (whites and African Americans), segmenting changes in expected income between those people born each decade between the 1930s and the 1980s. Their findings:
- White workers with a 4-year degree born from the 1930s to the 1970s saw a +57–72% pickup in income over their non-college educated counterparts. Those born in the 1980s only saw a +43% improvement, however.
- African American college grads born in the 1980s are, however, still seeing income differentials in line with older cohorts (+71% versus +66 – 76% for those born in the 1940s to 1970s).
The data looks similar for those workers with a graduate degree. For white workers born in the 1980s, the differential to their peers without an advanced degree is +54%, lower than the +80–108% of older cohorts. For African Americans, the benefits of a graduate education remain consistently high (+73–125% more than those without a grad school degree) across all age groups.
Where things look really bad is when you look at total wealth differentials between the age groups. These include both financial assets and non-financial, such as home ownership.
- On that count, white families with a college educated household member who was born in the 1980s is +42% better off for their sheepskin, versus +134–247% for those born in the 1930s to the 1980s. Moreover, the older the graduate, the better the differential.
- The news is even worse for African American households, where those born in the 1980s are only +6% better off than their non-college educated peers. Those differences were +126% to +253% for those born in the 1940s to the 1970s.
Exactly the same thing holds true when applied to graduate degrees: earlier born households accumulate much more wealth than later ones when compared to those who did not earn such a degree.
Key takeaway: to us, this looks like a solid data-driven indictment of the rising cost of US education, with its concurrent increase in student debt (and one that is vastly different from the far rosier take by the San Fran Fed in 2014). A college and/or graduate degree does mean higher wages. But it also means more educational debt, which delays both savings and home ownership.
The notion that younger demographic college graduate cohorts will deliver out sized economic growth, as their parents did when they were younger, seems suspect at best.