Conventional wisdom is overwhelmingly that earning a B.A. is now less and less valuable. The reality is the exact opposite: the young adult B.A. advantage is large and growing post pandemic.

The Pew Research Center just released a report titled Is College Worth It? that documents both that conventional wisdom of the lack of value in obtaining a B.A. and the exact opposite reality.

The report has national poll data on how Americans answer that question. And also economic outcome data by education attainment today, a decade ago and fifty years ago for 25-34 year olds. The survey results found big skepticism that college is worth it, particularly if one has to take out a student loan.

The focus of this post is on the reality of economic outcomes. What may be most striking about the economic well being data is how well 25-34 year olds overall are doing today compared to their own perception, the public’s perception, and their peers a decade ago. No matter your education attainment, 25-34 year olds today are doing substantially better than 25-34 year olds a decade ago. The notion that young adults post pandemic are doing far worse than young adults prior to the pandemic is simply inaccurate.

This is particularly true for young adults with a B.A. A completely different reality emerges from the data than conventional wisdom or the messaging that young people are getting from elites about the value of a B.A. The report contains lots of data on labor force participation, full time/year round employment, poverty rates and median household income.  Most broken down for men and women. But to keep this post short here I want to focus on median earnings from work and median net worth. All the data tell the same story, the young adult B.A. advantage is substantial and growing. 

Let’s start with median work earnings for full time/year round workers between the ages of 25 and 34. All figures are in $2022, so they are inflation adjusted.

• Median earnings for males in 2023 is $77,000 for those with a B.A.; $50,000 for those with some college but less than a B.A.; and $45,000 for those with a high school degree. 
• Median earnings for females in 2023  is $65,000 for those with a B.A.; $40,000 for those with some college but less than a B.A.; and $36,000 for those with a high school degree. 

The report also includes data on median net worth of households headed by a 25 to 34 year-old. Net worth means that the data includes subtracting student loans outstanding. Median net worth in 2022 for those with a B.A. was $120,200; for those with some college but less than a B.A. $52,900; and for those with a high school degree $30,700. 

How does this compare to a decade ago?

• Median earnings for males in inflation adjusted dollars is up $9,500 for those with a B.A.; $900 for those with some college but less than a B.A.; and $5,700 for those with a high school degree.
• Median earnings for females in inflation adjusted dollars is up $9,800 for those with a B.A.; $2,300 for those with some college but less than a B.A.; and $5,100 for those with a high school degree.

Median net worth of households headed by a 25 to 34 year-old in inflation adjusted dollars is up for those with a B.A. $73,600; for those with some college but less than a B.A. $37,200 and for those with a high school degree $18,000. Remember that this data includes subtracting student loans outstanding.

So the depth of the misinformation we have been communicating to young people is astonishing. The reality is with or without student loans young adults are far better off economically with a B.A. Student loans are not crushing those with a B.A., rather they lead to higher work earrings and wealth. And no the advantage of having a B.A. has not declined post pandemic. 

Add to that the wage and wealth premium grows substantially after age 34. Not to mention all the other advantages in median household income, time working, regaining a job after losing one, marriage, health, on and on and on. 

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The Federal Reserve in its Report on the Economic Well-Being of U.S. Households in 2019 measures well-being by education attainment. What they found is those with a B.A. or more value their education more than those with lower education attainment.

Specifically they asked survey respondents who ever attended college “Overall, how would you say the lifetime financial benefits of your most recent educational program compare to its costs?” The response: 31 percent with some college or technical degree thought the benefits of their education was greater than the costs; 48 percent of those with an associate’s degree; and 69 percent of those with a bachelor’s degree or more.

B.A. holders valuing their education the most is, of course, consistent with the data we have frequently explored that those with a four-year degree or more work more and earn more over a career than those with lower education attainment.

What it is not consistent with is the story we are told year after year that getting a four-year degree is no longer worthwhile. Those with a B.A. don’t buy that story at all!

When asked about changes they would make to earlier education decisions only five percent of those with a B.A. or more said they would not attend college or get less education. 35 percent said they would have completed more education.

This compares to 69 percent of those with an associate’s degree who said they would have completed more education. And 76 percent of those with some college or technical degree. So large majorities of those who attended college but without a B.A. say they did not get enough education. They also don’t believe the oft-told story that pursuing more education is no longer worthwhile.

What about those who took out students loans to fund their post-secondary education? One of the reason given for a four-year degree not being worthwhile anymore is perceived high debt loads. 18-39 year old B.A. holders who ever took out a student loan don’t believe that.

Of those 18-39 who have paid off their student loans 93 percent of those with a B.A. or more say that they are doing at least okay financially. Compared to 71 percent of those 18-39 with some college or a technical or associate’s degree.

For those 18-39 still paying off a student loan 76 percent with a B.A. or more say they are doing at least okay financially compared to 53 percent of those with some college or a technical or associate’s degree.

The economic well-being report provides data on why those with a four-year degree or more value their education more than those with lower education attainment. They have higher income: 43 percent of those with a high school degree or less; 58 percent of those with some college or a technical degree; 67 percent with an associate’s degree; and 84 percent of those with a B.A. or more had household income in 2019 of $40,000 or more.

So it is clear that those with a four-year degree or more value their education more than those with less education. Their life experience is that they are better off financially because they have a B.A. including those who took out a student loan.

And they are giving that message to their kids. The report finds that 72 percent of those 22-29 with at least one parent with a bachelor’s degree have a B.A. This compares to 35 percent with a B.A. of those 22-29 with at least one parent with some college but neither with a bachelor’s degree and 19 percent of those with both parents having a high school degree or less.

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2018 work earnings data are now available from the Current Population Survey. What follows is an update of an earlier post now with 2018 data.

The story we are told over and over again is for today’s students getting a four-year degree is no longer a good value for many. It may have been for their parents’ generation, but no more. Everything from student loans college graduates can’t afford because of low salaries; to employers getting smart and now hiring for skills, not degrees; to the skilled trades pay as well, if not better, for those who don’t have STEM degrees; etc.

The only problem is that data from the 2019 Current Population Survey tells the exact opposite story. 25-34 year olds with a four-year degree or more had work earnings in 2018 far higher than those with lesser education attainment. The chart at the end of this post has the detailed data.

In 2018 25-34 year olds with a B.A. or higher had median earnings from work 170 percent of those with a high school degree and 148 percent of those with an Associates Degree. The average earnings premium is even higher: 183 percent compared to those with a high school degree, and 158 percent compared to those with an Associates Degree.

Just as it is for all workers, the reality is for 25-34 year olds the higher the education attainment the higher the work earnings as you move up the education attainment ladder. With, by far, the biggest step being between those with an Associates Degree and those with a B.A. or more, with medians $17,000 higher annually. You read that right: the typical 25-34 with a four-year degree or more earns $17,000 a year more than the typical 25-34 year old with an Associates Degree.

The median premium for those with a Bachelors Degree or more compared to a high school degree is more than than $21,000 a year. The median premium for an Associates Degree compared to a high school degree is less than $4,000 a year.

The story that others’ kids should forgo pursuing a four-year degree almost always includes some so-called professional trade paying $100,000: welding, coding, auto mechanic, you name it. Once again the data tell a very different story. If you click on the CPS link earlier in this post you will find earnings for 25-34 year olds by $2,500 increments by education attainment in 2018. What you will find is that lower earnings cohorts are dominated by those without a four-year degree, while higher earnings cohorts are dominated by those with a four-year degree.

Are there some without four-year degrees who have high earnings? Of course. Are there some with four-year degrees with low earnings. Also, of course. But what the data clearly say is that getting a four-year degree is the most reliable path to the middle class when you are 25-34 years old.

So what about those making six figures? There were 2.79 million 25-34 year olds in 2018 with earnings of $100,000 or more. Of those 2.22 million had a B.A. or more. In 2018 21.60 million 25-34 year olds without a four-year degree had work earnings. Of those 2.5 percent (567,000) had work earnings of $100,000 or more. Of the 16.03 million 25-34 year old workers with a four year degree 13.8 percent made six figures.

As we have written frequently, most of those telling kids not to get a four-year degree are doing the exact opposite with their own kids. Most affluent parents are preparing their kids for four-year degrees from preschool on. They are doing so because they know this reality: That the most reliable path––even with a student loan––to a good-paying career is to obtain a four-year degree or more.

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(1) Stay away from for-profit colleges. The number of students who take out loans at these institutions and eventually default is incredibly high, even if they earn a degree.

(2) And second, loan default rates are incredibly low for students who never attended a for-profit college, and earn a bachelor’s degree.

There is a lot of other data in the post, but those are the major lessons. Today, I want to present two graphs to illustrate these major findings.

The first graph shows the overall default rates (students who, at any point, defaulted on a loan they took out to pay for school) for three different groups of students: (1) those who started at a four-year college in 2004 and never attended a for-profit college; (2) students who started at a two-year college in 2004 and never attended a for-profit; and (3) all students that started college in 2004 but at some point attended a for-profit college.

As you can see, default rates for students starting at both four- and two-year colleges are around 12 percent. For students who ever attended a for-profit? 45 percent. Nearly half of all students who walk through the doors of a for-profit college will default on their loans.

Lesson one: stay away from for-profit colleges.

The second graph breaks down the outcomes for all students who started at a four-year college in 2004 and never attended a for-profit, based on degree-attainment. We dove into this population because the public narrative makes it seem like attending a four-year college leads to crippling debt. But the narrative doesn’t stand up to the data.

Less than 5 percent of students who started at a four-year college, never attended a for-profit, and earned a bachelor’s degree ever defaulted on their loans. And this represents the majority of students who started at a four-year college in 2004 and never attended a for-profit: 62 percent of these students earned a bachelor’s degree in six years.

Lesson number two: complete a bachelor’s degree.

Yes, a quarter of students who failed to complete their degree did at some point default on their loans, and that’s not good. Ideally going to college would carry no risk at all. However, under current conditions, in which a bachelor’s degree is all but required to obtain high-paying work, but college costs are still historically high, the solution isn’t to tell all non-affluent kids to avoid college. Instead, it’s to make sure they complete college.

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In October of last year, the federal government released new data on student debt and repayment that offered the most comprehensive picture yet of exactly who is having trouble paying back their student loans, and at which type of institutions, allowing us to take a more nuanced look at the student loan landscape. The picture is both better and worse than most people think.

The for-profit sector is responsible for much of the damage

What primarily jumps out from this new set of data is the outsized role the for-profit sector plays in the student loan “crisis.” While 17 percent of all students that began college in 2004 had defaulted on their loans within 12 years of college entry, a full 47% of students that started at for-profit colleges had defaulted within that same time span. Based on existing default rates and patterns from past cohorts, Judith Scott-Clayton of the Brookings Institution projects that 70% of the 2004 for-profit cohort will default by 2024.

In other words, if we do have a student loan crisis on our hands, it’s for-profit colleges that are driving it.

Graduation and four-year degrees really matter

Susan Dynarski, an economics professor at U of M, has written for years that what we see as a student debt crisis is actually more of a college completion crisis. It turns out that those that get into trouble paying back student loans generally don’t have a lot of debt – because they didn’t spend enough time in college to complete their degrees. So they leave college with a relatively small amount of debt, but with no credential to help them earn a wage premium in the labor market. College graduates tend to carry more debt, but are earning enough that they have little trouble paying it off.

This new data again emphasizes the importance of graduation, and the importance of earning a valuable credential. Of the 2004 cohort, just 5.6 percent of students who attained a bachelor’s degree defaulted on their loans within 12 years. This is three times lower than the rate for all students, and reflects the fact that the bachelor’s degree wage premium continues to rise, enabling BA holders to easily pay back their loans.

These same positive outcomes do not hold for those that earn an associate’s degree or occupational certificate. 14 percent of the 2004 cohort that earned an associate’s degree defaulted within 12 years, and 28 percent of those that attained a certificate defaulted, despite average loan burdens far lower than for those who earned a bachelor’s degree. This is driven both by greater participation by for-profit institutions in the sub-baccalaureate space and uneven returns for sub-baccalaureate credentials.

Regardless, the higher rates of default among sub-baccalaureate completers is an important finding. The risk of student loan defaults is often cited as a reason students should avoid attending a more expensive four-year institution, and opt instead for cheaper two-year schools. This data suggests that passing on a four-year school may in fact be the far riskier option.

Black BA holders

The most disappointing finding from the data was that the low default rates for those that earn a BA do not hold for black students. While just 4 percent of white BA holders defaulted within 12 years, 21 percent of black BA holders did, an unacceptably high number.

What’s driving the high number of defaults? Evidence suggests that black recent-graduates face discrimination in the labor market, with an unemployment rate double that of white recent-graduates. Black students are also more likely to attend lower-selectivity colleges, whose alumni experience lower earnings and higher default rates.

But a major factor also appears to be patterns in graduate school borrowing among black college graduates. Perhaps because of relatively poor labor-market outcomes, black college graduates are now more likely than white college graduates to attend graduate school, a relatively recent phenomenon. But the increase in graduate school attendance among black college graduates has been almost entirely driven by attendance at for-profit graduate schools, with almost 30 percent of all black graduate school students attending a for-profit institution.

As is the pattern in the rest of the for-profit sector, these students borrow significant sums to attend these institutions, yet see little return on their investment in the labor market.

Counseling, counseling, counseling, and counseling

The reason I keep putting scare quotes around the word “crisis” in this post is because taking out student loans shouldn’t be all that scary. Yes, college needs to be far cheaper, and we need to commit dramatically more public funds to make it cheaper. But under our current system, in which a a four-year college is really expensive, yet offers the best pathway to good-paying work, loans are a necessary tool to give all students access to higher education. And scaring students away from taking on debt makes it less likely that they’ll attend college, less likely that they’ll persist, and less likely that they’ll graduate. This is a problem because even if a bachelor’s degree doesn’t guarantee economic success, it certainly offers a far better chance of being employed in a good-paying job than other potential paths.

What’s needed instead is more and better counseling at all stages of the college process. This means counseling high school students into colleges with high graduation rates and good financial aid; counseling students to take on appropriate levels of federal student loans; counseling students to persist through to graduation; and then counseling them to enroll in income-based repayment systems to prevent loan defaults.

The right kind of loans, for the right kind of education, can be the best investment of a student’s life. It’s our job to make sure that it is.

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The article reports: Recent research from the economist Beth Akers shows that borrowers with less than $5,000 in student debt are the most likely to be late on payments. In fact, the more college debt a student incurs, the less likely he or she is to default. This may seem counterintuitive, but it’s not—a low loan balance is indicative of a borrower who didn’t complete school, and is therefore less likely to repay. According to Department of Education statistics, defaulters also tend to be older (the median age is thirty eight), from low-income backgrounds, with poor financial literacy, and with no degree to show for their efforts. A disproportionate number of them attended for-profit colleges.

This is all evidence of a large crisis in American higher education: we have a big college completion problem. More than thirty-one million adults have earned college credit within the last twenty years but left without any post-secondary credential. By 2012, only 59 percent of students seeking a bachelor’s degree graduated within six years. For students seeking a certificate or degree at a two-year institution, the completion rate was 31 percent. (Emphasis added.)

A recent MLive article on the Kalamazoo Promise––the national model tuition free program––reported “… that starting with the KPS Class of 2006, The Promise has paid $61 million in tuition for 3,700 students. As of November 2014, more than 800 have earned a degree or post-secondary certificate. But there are another 1,000 students who entered college and dropped out …”

The article continues: “Our 12th graders are not ready for college,” parent Leona Carter said. “The benchmarks are not high enough in high school.” Participants (Promise students and parents)  also suggested the high schools need more counselors to help students through the college application and admission process; students need more visits to college campuses outside of the field trip taken by all KPS sixth-graders; and KPS graduates need to be better prepared for the self-discipline that college requires.”

Lower or even free tuition isn’t going to fix the low rates of college completion alone. As the Promise parents and students noted we need more rigorous high schools, organized to deliver far better teaching and learning and to build skills that matter that are not measured by standardized tests. But we also need higher education institutions that are organized to provide the supports students need to earn a college degree.

Far too many of our colleges and universities are organized on a sink of swim model. We admit you, provide the classes you need to graduate and everything else is up to the student. That model gets high drop out rates and needs to change.

The Washington Monthly article has some examples of colleges and universities that are organizing themselves to support student success. Michigan Future published a report that is a case study of four colleges and universities that are getting much higher graduation rates because they are supporting students. And MDRC published an evaluation report of the City University of New York’s (CUNY’s) Accelerated Study in Associate Programs which has dramatically improved graduation rates. So increasing college completion rates is doable. We need to make it the priority at all colleges and universities.

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What the Governor didn’t say is that the major reason tuition has gone up is state budget cuts. And that the single best lever to lower tuition is for the state to reverse about a billion dollars in higher education funding cuts over the last decade. These cuts were implemented on a bi-partisan basis. Elected officials of both parties have been great at complaining about rising tuition, at the same time they have been slashing higher education funding.

As Dylan Matthews wrote for the Washington Post in the conclusion of an extensive ten part series entitled The Tuition is Too Damn High: “For public colleges offering master’s and bachelor’s degrees and for community colleges, the problem is simple. Spending has not increased much at all, but tuition has. There’s been a straightforward shift from financing based on state spending to financing based on student tuition.” (Emphasis added.)

This covers almost all public universities in Michigan, with the exception of the University of Michigan and maybe Michigan State University. Managing their cost structures is not the issue, state disinvestment is. (Matthews argues that research universities costs are going up for a different set of reasons. A lot of having to do with wanting/needing to compete for students from affluent families from anyplace on the planet who can and will pay high tuition.)

As a candidate Snyder wrote in his 10 point plan for growing the Michigan economy:

Lip service has been paid to creating a knowledge-based economy, but that transition has been delayed by cuts in funding for higher education … The state needs to reverse recent trends of under-investing in colleges, universities and community colleges. Michigan spent decades building a world-class system of higher education. The system is arguably the most import asset the state has to develop the concentration of talent Michigan needs to be successful in the knowledge-based economy.

But he like Governor Granholm before him, as we explored previously, pursued higher education funding cuts, in large part to fund tax cuts. A record 15% higher education cut in his first year in office. The inevitable result: tuition went up.

What is missing in all these complaints about tuition being too high is the benefits of those costs. Ultimately like any other product we buy the relevant question is “what value are you getting for your money?”. And here the answer is unequivocal: its a great investment. New York Times columnist David Leonhardt deals with this in a terrific piece entitled Is College Worth It? Clearly, New Data Say. He writes:

The decision not to attend college for fear that it’s a bad deal is among the most economically irrational decisions anybody could make in 2014. The much-discussed cost of college doesn’t change this fact. According to a paper by Mr. Autor (David Autor, an M.I.T. economist) published Thursday in the journal Science, the true cost of a college degree is about negative $500,000. That’s right: Over the long run, college is cheaper than free. Not going to college will cost you about half a million dollars.

Mr. Autor’s paper — building on work by the economists Christopher Avery and Sarah Turner — arrives at that figure first by calculating the very real cost of tuition and fees. This amount is then subtracted from the lifetime gap between the earnings of college graduates and high school graduates. After adjusting for inflation and the time value of money, the net cost of college is negative $500,000, roughly double what it was three decades ago. (Emphasis added.) 

Let me be clear, we think that tuition should be lower. We have argued for years (see our A New Agenda for a New Michigan report) that state disinvestment in higher education is not smart. But until and unless public policy changes, higher tuition is going to be a reality as are student loans to pay for that higher tuition. And we need to portray it accurately: it is a good––probably the best––long term investment. The data are clear: rather than a crushing burden and/or an unfair cost imposed on college students, paying higher tuition, even with students loans, are a good investment that leads to much higher future earnings.

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