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.
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. (...)
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.
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.
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.
[ed. And, of course, the benefits of being surrounded by people who, like you, are all experiencing a critical time in their transition to adulthood with different life strategies and perspectives.]
