Historically, a bachelor’s degree was perhaps the single most important key to increasing people’s income and their wealth. The conventional wisdom is that a college education all but guarantees access to the middle class and a higher standard of living for each successive generation. Yet new research from the Federal Reserve Bank of Saint Louis calls this equation into question.
The numbers are stark. The college income premium still exists. But the wealth premium—the difference in net worth between college and non-college graduates—has plunged since 1940. Put simply: College graduates today are experiencing a profound struggle to generate wealth. The biggest culprit is likely the surging cost of higher education and an accompanying increase in student loan debt.
The researchers analyzed the Federal Reserve Board’s Survey of Consumer Finances, which encompasses economic data about heads of households through the 20th century. While they still found that an income premium exists—meaning that college graduates still earn more than non-graduates—the wealth premium has essentially disappeared for non-white graduates born in the 1980s. (White college graduates born in the 1980s retain a wealth premium.) This is a “striking divergence between the income and wealth outcomes.”