Americans are losing their faith in higher education, with over half of respondents in a recent Wall Street Journal poll claiming that a bachelor’s degree is not worth the cost. This sentiment is especially prevalent among young people, who see college as a risky financial gamble. However, it is important to consider the economic reality that most young people are still better off with a four-year college degree.
The traditional measure of higher education’s value, known as the college wage premium, shows that college graduates earn significantly more than those without a degree. However, this measure does not take into account the cost of obtaining a degree. To provide a more comprehensive picture, researchers at the Federal Reserve Bank of St. Louis introduced a new metric called the college wealth premium. This metric compares the wealth premium of individuals born in the 1980s with that of previous generations, projecting future earnings to account for the younger cohort’s shorter time to accumulate wealth. The findings indicate that the lifetime wealth premium for those born in the 1980s will be lower than any previous generation.
However, this analysis overlooks an important aspect. The researchers assumed that the college wage premium will remain constant throughout the individuals’ lives, which is unlikely to be the case. Historical data shows that the college wage premium tends to increase as individuals gain experience and move into professional occupations. This is because college serves as a gateway to these higher-paying careers, where individuals learn new skills, advance in their positions, and gain managerial experience. On the other hand, noncollege workers often end up in lower-paying jobs with limited opportunities for wage growth.
For instance, the average annual salary for truck drivers in the U.S. is around $48,700, while the average annual income for business graduates working full-time at age 24 is similar. However, by the age of 50, business graduates can expect their earnings to double to $100,000, while truck drivers will see a more modest increase to approximately $51,000. The earnings advantage for college graduates continues to grow with work experience, eventually reaching nearly double the income of workers with only a high-school degree.
Although this analysis paints a positive picture for college graduates, the timeline for student loan repayment follows a different trajectory. Federal student loans typically have a repayment period of 10 years, which begins shortly after graduation. This means that college graduates are required to repay their loans by their mid-30s, precisely when the earnings premium from a bachelor’s degree is at its smallest. This situation effectively asks young individuals to delay gratification until their mid-30s or later. However, the long-term rewards are worth it.
While there is uncertainty about whether today’s college graduates will experience the same earnings growth as previous generations, it is important to note that negative public sentiment and skepticism around higher education may dissuade individuals from pursuing a college degree when it is in their long-term interest to do so. This is particularly harmful for low- and middle-income students who are more sensitive to college costs. Wealthy families, on the other hand, will continue to prioritize a four-year college education for their children, ensuring their long-term success.
Interestingly, even highly educated elites in journalism, business, and academia often question the value of a four-year degree, despite their own life choices contradicting this skepticism. A recent poll by New America revealed that only 38 percent of respondents with household incomes over $100,000 believed that a bachelor’s degree was necessary for financial security. However, when asked about their own family members, that number jumped to 58 percent.
As a labor economist, I advocate for increased investment in workforce development to enhance economic mobility for individuals without a four-year degree. Additionally, public investment in higher education, such as tuition-free public college, would help more students afford a degree. However, until these changes occur, young people must make the most of their current situation. While taking on debt for college may feel risky, the long-term value of a bachelor’s degree far outweighs the initial costs. If anyone tries to convince you otherwise, ask them what they would choose for their own children.
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