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The College Boost: Why Are Wealth Returns from a Degree Falling?

Thursday, July 19, 2018

financial literacy month

By William Emmons, Lead Economist; Ana Hernández Kent, Policy Analyst; and Lowell Ricketts, Lead Analyst, Center for Household Financial Stability

This is the final post in a series on the financial returns of college degrees.

Our previous blog post presented a disturbing finding: The expected wealth accumulations associated with a four-year and a postgraduate degree have fallen across successive birth cohorts. In contrast, the earnings advantage afforded college grads was more resilient over time.

There are many hypotheses to consider when attempting to explain the relatively strong incomes associated with a college degree alongside weakening wealth accumulation. Here are a few possible reasons.

Rising Cost of College

The rising cost of college is an important one. The growth rate in the cost of college—as measured by the consumer price index—has tripled that of overall prices since 1978, and more students have had to resort to financing their education.

Even for students who don’t need to borrow, rising costs could draw down the wealth of their parents or extended family, weakening the financial safety net of their family and displacing other asset accumulation (such as buying a home or investing in financial assets).

Other Forms of Debt

Financial liberalization, or the greater availability of consumer credit, could also play a role in explaining some of the weakness in wealth accumulation for more recent graduates. Using the Federal Reserve Board’s Survey of Consumer Finances, we found a long-term increase in debt and debt burdens across generations, as seen in the figures below.

FY debt income ratio

post grad debt income ratio

These debt burdens require greater financial acumen among today’s college grads at notably younger ages. The risk of overextending a household’s finances are much higher today than in the past, especially with the prohibition (except in a few cases) on discharging student loans in bankruptcy.

Timing of Asset Purchases

Lastly, aggregate wealth fluctuations are another potential factor. Simply put, the generation that acquires assets when their prices are low has an advantage over following generations that purchase the same assets when they are expensive.

This was an important explanatory dynamic in our recent Demographics of Wealth essay, which identified lower wealth accumulation among families born in the ‘60s, ‘70s, and ‘80s. Emmons, William R.; Kent, Ana H.; and Ricketts, Lowell R. “A Lost Generation? Long-Lasting Wealth Impacts of the Great Recession on Young Families .” The Demographics of Wealth: 2018 Series, Essay No. 2, May 2018. Ownership (or lack thereof) of housing and financial assets prior to and following the Great Recession was associated with very different wealth recoveries.


Is college still worth it? To answer this question as posed by our recent symposium: Yes, a college degree remains a valuable investment for many. As in the past, it is associated with significantly higher earnings in the job market. However, the wealth accumulation of today’s graduates looks meaningfully lower than graduates of yesteryear.

It’s not entirely clear what’s driving this development, but the much higher price tag attached to a degree seems obvious. These results suggest that pursuing a college degree is a riskier decision for many more prospective students than it was in the past. Consequently, oversimplifying the financial benefits of college by looking solely at the aggregate return obscures an alarming trend in higher education.

Notes and References

Emmons, William R.; Kent, Ana H.; and Ricketts, Lowell R. “A Lost Generation? Long-Lasting Wealth Impacts of the Great Recession on Young Families.” The Demographics of Wealth: 2018 Series, Essay No. 2, May 2018.

Additional Resources

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