The College Backlash Is Going Too

Far
Getting a four-year degree is still a good investment.
By David Deming October 3, 2023, 7 AM ET

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Americans are losing their faith in higher education. In a recent Wall Street
Journal poll, more than half of respondents said that a bachelor’s degree
isn’t worth the cost. Young people were the most skeptical. As a recent New
York Times Magazine cover story put it, “For most people, the new
economics of higher ed make going to college a risky bet.” The article drew
heavily on research from the Federal Reserve Bank of St. Louis, which found
that rising student-loan burdens have lowered the value proposition of a
four-year degree.

American higher education certainly has its problems. But the bad vibes
around college threaten to obscure an important economic reality: Most
young people are still far better off with a four-year college degree than
without one.

Historically, analysis of higher education’s value tends to focus on the so-

called college wage premium. That premium has always been massive—
college graduates earn much more than people without a degree, on
average—but it doesn’t take into account the cost of getting a degree. So
the St. Louis Fed researchers devised a new metric, the college wealth
premium, to try to get a more complete picture. They compared the wealth
premium of people born in the 1980s with that enjoyed by earlier cohorts.
Because those earlier generations have been alive longer and thus have had
more time to build wealth, the researchers projected out the future earnings
of the younger cohort. They found that the lifetime wealth premium will be
lower for people born in the 1980s than for any previous generation.

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That analysis, however, suffers from a key oversight. In estimating the

lifetime earnings for people who are now in their 30s and early 40s, the
researchers assumed that the college wage premium will stay constant
throughout their life. In fact, it almost surely will not. For Baby Boomers, Gen
Xers, and older Millennials, the college wage premium has more than
doubled between the ages of 25 and 50, from less than 40 percent to nearly
80 percent. Likewise, the college wealth premium for past generations was
initially very small but grew rapidly after age 40. History tells us that the best
is yet to come for today’s recent graduates.

Wages grow faster for more-educated workers because college is a gateway

to professional occupations, such as business and engineering, in which
workers learn new skills, get promoted, and gain managerial experience.
Most noncollege workers, in contrast, end up in personal services and blue-
collar occupations, for which wages tend to stagnate over time.
For example, truck drivers in the U.S. earn an average annual salary of about
$48,700, according to my analysis of data from the American Community
Survey. (Full-time unionized drivers can make much more, but they’re in the
minority.) That’s close to the average annual income for four-year college
graduates working full-time at age 24. It’s easy to see why some young
people might look at those numbers and opt against borrowing money to
attend a four-year college. Yet the math will be very different a decade later.
For example, average earnings in business occupations, where almost
everyone has a four-year degree, are about $50,000 at age 24, but double to
$100,000 by age 50. Average earnings for truck drivers grow from about
$36,000 to only about $51,000 over the same period. The earnings
advantage for college graduates increases steadily with work experience,
until eventually they are earning nearly twice as much as workers with only a
high-school degree.

The debt timeline is basically the reverse. Most federal student loans have a
repayment period of only 10 years, which begins shortly after graduation.
(The exception is income-based and income-driven repayment loans, which
charge a share of borrowers’ discretionary income for 20 to 25 years. These
are about a quarter of all loans today and were less common several years
ago. Private loans vary in term length, but most are about 10 years.) This
means that the typical college graduate must completely repay their loans
by their mid-30s. In other words, the earnings premium from a bachelor’s
degree is smallest in the years when graduates are also paying down their
debts. We are effectively asking a 17-year-old high-school student to delay
gratification until age 35 or later—longer than they have been alive. But the
rewards are worth it.

Of course, we cannot know for certain whether today’s college graduates will
experience the same earnings growth as past generations. The tightness of
the post-pandemic labor market has created upward pressure on wages in
sectors such as retail and hospitality, leading to especially strong wage
growth for less-educated workers. As a result, the college wage premium
has been falling since 2020, after three decades of growth. Could this time
be different?

In 1976, the Harvard economist Richard Freeman published a book called

The Overeducated American. The labor market for young college graduates
had been particularly depressed in the early 1970s, with the wage premium
falling by more than 10 percentage points in less than a decade. As a result,
college enrollment began to decline, reversing what had been a steady
positive trend. Freeman argued that society was investing too much in higher
education, and that college was no longer worth it for the marginal student.

His timing was impeccably bad. Shortly after the book’s publication, the
college wage premium rose rapidly, increasing by more than 20 percentage
points from 1976 to 1988. At age 50, the college graduates who entered the
labor market in the 1970s were earning about 70 percent more than their
less-educated contemporaries. College had been worth it after all; it just felt
riskier and took longer to pay off.

We appear to be in a similar moment today. Despite the bad vibes around

higher education, the fastest-growing occupations that do not require a
college degree are mostly low-wage service jobs that offer little opportunity
for advancement. Negative public sentiment might dissuade some people
from going to college when it is in their long-run interest to do so. The
potential harm is greatest for low- and middle-income students, for whom
college costs are most salient. Wealthy families will continue to send their
kids to four-year colleges, footing the bill and setting their children up for
long-term success.

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Indeed, highly educated elites in journalism, business, and academia are

among those most likely to question the value of a four-year degree, even if
their life choices don’t reflect that skepticism. In a recent New America poll,
only 38 percent of respondents with household incomes greater than
$100,000 said a bachelor’s degree was necessary for adults in the U.S to be
financially secure. When asked about their own family members, however,
that number jumped to 58 percent.

As a labor economist, I have argued elsewhere that the U.S. should invest
more in workforce development to increase economic mobility for people
who don’t have a four-year degree. At the same time, public investment in
higher education, including making public-college tuition free, would help
more students afford getting a degree. Until that happens, however, young
people must play the cards they’ve been dealt. Taking on debt to go to
college can feel risky, especially for first-generation students who don’t have
examples from their own family, or for any young person without
generational wealth. But the long-term value of a bachelor’s degree is much
greater than it initially appears. If a college professor or pundit tries to
convince you otherwise, ask them what they would choose for their own
children.