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Thursday, September 7, 2023

College, Debt, and Wealth

Paul Tough at NYT:
In the fall of 2009, 70 percent of that year’s crop of high school graduates did in fact go straight to college. That was the highest percentage ever, and the collegegoing rate stayed near that elevated level for the next few years. The motivation of these students was largely financial. The 2008 recession devastated many of the industries that for decades provided good jobs for less-educated workers, and a college degree had become a particularly valuable commodity in the American labor market. The typical American with a bachelor’s degree (and no further credential) was earning about two-thirds more than the typical high school grad, a financial advantage about twice as large as the one a college degree produced a generation earlier. College seemed like a reliable runway to a life of comfort and affluence.

A decade later, Americans’ feelings about higher education have turned sharply negative. The percentage of young adults who said that a college degree is very important fell to 41 percent from 74 percent. Only about a third of Americans now say they have a lot of confidence in higher education. Among young Americans in Generation Z, 45 percent say that a high school diploma is all you need today to “ensure financial security.” And in contrast to the college-focused parents of a decade ago, now almost half of American parents say they’d prefer that their children not enroll in a four-year college.

He writes that the opinion has some basis in fact.  Younger college graduates do not have much of a wealth advantage over young non-college adults.

 Millennials with college degrees are earning a good bit more than those without, but they aren’t accumulating any more wealth. How can that be?

Lowell Ricketts told me he had a pretty good idea of the cause, even though the group’s data couldn’t be conclusive on this point. The likely culprit, he said, was cost: the rising expense of college and the student debt that often goes along with it. Carrying debt obviously diminishes your net worth through simple subtraction, but it can also prevent you from taking important wealth-generating steps as a young adult, like buying a house or starting a small business. And even if you (or your parents) were able to pay your tuition without loans, the savings you used are gone when you graduate, and thus are no longer available to serve as a down payment on a starter home or the beginning of a nest egg for retirement.

A few decades ago, tuition costs were manageable for many Americans. But since 1992, the sticker price has almost doubled for four-year private colleges and more than doubled for four-year public colleges, even after adjusting for inflation. Today the average total cost of attending a private college, including living expenses, is about $58,000 a year. After financial aid, the average net price for private-college students is about $33,000 a year; at public institutions, it is about $19,000. Those averages conceal a great deal of variation, however; at the University of Michigan (a public university), tuition, fees and expenses for out-of-state juniors and seniors total more than $80,000 a year.