St. Louis Fed: Conventional wisdom on college degree’s worth is changing

by Wesley Brown (wesbrocomm@gmail.com) 465 views 

A new report by the St. Louis’s Fed’s Center for Household Financial Stability notes that while a college degree is usually associated with higher pay and a better financial future, the extent of those benefits today depends on your demographics.

In the Center’s report, called “Is College Worth It? It’s Complicated,” the St. Louis Fed’s economic researchers help answer that question by commissioning original research from leading scholars in the fields of economics, sociology, education and public policy. The results of the findings, they said, are rich and varied.

“We corroborated the conventional wisdom that, on average, a college degree is associated with higher family income and wealth over one’s lifespan,” William Emmons, the Center’s lead economist, said in a Feb. 7 research note. “However, the extent of the returns depended on several demographic characteristics — most notably, when people were born and their races or ethnicities. In particular, the financial benefits one can expect from a college degree appear to be lower among people born in the 1980s, and they remain unequal across racial and ethnic groups.”

Emmons and his research team also found that the likely payoff to a college degree depends on whether you have a college-educated parent.

“First-generation college graduates typically receive an income and wealth boost, but they fall short of college grads whose parents also have college degrees,” he said.

In the report, the researchers from the Federal Reserve’s expansive Eighth District that includes Arkansas and other Mid-America states examined the income and wealth of college graduates and postgraduate degree holders born between 1930 and 1989 and found two consistent trends.

First, the average college and postgrad income premiums, which is the amount a family headed by a four-year or postgrad degree holder earns in excess of an otherwise similar family, have declined somewhat across successive birth-decade cohorts but it remained substantial.

In terms of earnings, college is clearly still worth it. This was true for all races and ethnicities, including non-Hispanic white, black, Hispanic and all other families. At the same time, the college “wealth premium” has declined more noticeably over successive generations of college grads and precipitously for people born in the 1980s.

“Disturbingly, the wealth benefits of college and postgraduate degrees were much lower among non-white family heads born in the 1970s and 1980s,” the Fed researchers state. “In terms of wealth accumulation, college is not paying off for recent college graduates on average — at least, not yet.”

So, is college still worth it? On average — that is, across all birth years, races and ethnicities — college is still worth it in terms of earnings, the Fed researchers conclude.

“We found that college and postgrad degree holders generally earn significantly higher incomes than nongrads. However, for recent generations and for non-white students, the payoffs are somewhat lower than average. This is especially true for wealth accumulation. Considering all of the evidence, we conclude that the conventional wisdom about college is not as true as it used to be,” the report stated.

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