May 5, 2024 by Philip Lewenstein

Higher Education May No Longer Be Safe Bet for Students

Paul Tough, who has written several books on education, inequality, and success, explores what changed in the last decade to make a college education—and higher education as an institution—so unappealing to so many Americans (“Americans Are Losing Faith in the Value of College. Whose Fault is That?” September 5, 2023, The New York Times Magazine).

A few decades ago, government funding covered much of the cost of public college, Tough notes. Now, however, students and their families bear much of the burden, “and that fact has changed what used to be a pretty straightforward calculation about the economic value of college into a complex math problem.”

Tough distinguishes between the college wage premium, a gap that exists between the incomes of college graduates and high school graduates, and the college wealth premium, which looks at all one’s assets and debts to determine how much net wealth typical college graduates accumulate over their life span compared with that of a typical high school graduate.

“In theory, today’s sky-high college wage premium should mean a surge of young people onto college campuses, not the opposite,” Tough says. “But as a measure of the true value of higher education, the college wage premium has one important limitation. It can tell you how much college graduates earn, but it doesn’t take into account how much they owe—or how much they spent on college in the first place.”

When one analyzes the financial advantage that college graduates receive through the lens of wealth, as opposed to income, the benefits to a college degree begin to evaporate, Tough reports.

Tough refers to the work of Douglas Webber, a senior economist at the Federal Reserve Board. Webber found that for Americans in the aggregate, the college wage premium remains robust.

“What has changed, he (Webber) has written, is that the premium now varies much more than it used to among individuals and groups,” writes Tough. “The ‘downside risk’ to enrolling in college, he (Webber) argues has become ‘nontrivial.’ When you look at Webber’s data, higher education no longer resembles a safe, reliable blue-chip investment, like buying a Treasury bill. It’s now more like going to a casino. It’s a gamble that can still sometimes produce a big windfall, but it can also bring financial disaster.”

Webber analyzed Federal Reserve data by college major, academic ability, and tuition costs to determine who was winning or losing at the higher education casino. There’s a 96% chance the gamble will pay off if tuition is free, if you’re certain to graduate within six years, and if you’re pursuing a business or STEM degree, he found.

Webber and his colleagues identified the people who are making out the worst at the casino: students who borrow money to attend but don’t graduate.

Referring to research on the intersections of social class and higher education by economists Raj Chetty, John Friedman, and David Deming, Tough concludes that the college casino is not entirely a game of chance.

“Your odds of coming out ahead depend largely on who your parents are,” Tough says. “If you possess the social and financial advantages necessary to gain admission to one of the nation’s most selective colleges, you’ll probably make out fine, even if the table stakes do seem awfully high.

“Most American college students, however, don’t have access to the benefits that these selective colleges produce. Only about 10% of students today are enrolled at a college that admits fewer than half its applicants. The rest of the American college-going population attends mostly less selective public institutions, local community colleges, or for-profit schools.

“Students at those institutions are more likely to be rural, Black or Latino, working class or low income or all of the above. They are less likely to graduate and more likely to incur debt they can’t pay back. For them—the large majority of American college students—the risks they face when they walk into the casino are considerably higher.”

With those odds, Tough concludes, it is unsurprising that young Americans are eager to believe that they will thrive in the job market without having to worry about college.

“The reality, though, is that in the decade ahead, opportunities for those without a post-secondary credential are projected to shrink even further,” Tough says, noting that there are still some well-paying jobs that don’t require a degree.

Plumbers make a median of almost $60,000 a year, according to the Bureau of Labor Statistics—but the bureau predicts that fewer than 10,000 new plumbing jobs will be created in the United States between now and 2031, Tough says.

The fastest-growing jobs available to those with only a high school diploma are mostly low-wage service jobs such as home health aides, food-service workers and waiters, restaurant cooks, and warehouse workers—and none of these jobs have a median salary above $31,000 a year, Tough notes.

At the same time, economists expect demand for American college graduates to keep rising faster than colleges can keep up, which means that the college wage premium is likely to also increase, according to Tough.

“For the nation’s affluent families (and their children), the rules of the higher education game are clear, and the benefits are almost worth the cost,” Tough says. “For everyone else, the rules seem increasingly opaque, the benefits increasingly uncertain, and the thought of just giving up without playing seems more appealing all the same.”