President
Obama recently outlined a series
of initiatives to make higher education more affordable to middle class
Americans by driving better college performance,
promoting innovation and completion in the marketplace, and ensuring that
student loan debt is manageable. Economists have
long known that education (or, as economists call it, “human capital”) benefits
America as a whole. After all, a well-educated and highly-skilled work force is
a key ingredient for long-term
economic growth, especially in an increasingly competitive global
economy. But there is also strong evidence that the economic benefits of college
education to individual Americans and their families are large and growing.
In the 21st Century, a college degree plays an
increasingly pivotal role in helping families achieve the American Dream –
getting a job, earning a decent living, and climbing the economic ladder from
where their parents were. But at the same time, paying for college has become more
difficult, especially for middle and working class families, whose college
attendance continue to lag behind that of wealthier families. That is why it is
important that a quality higher education remains within the reach of all
Americans, regardless of income.
Higher education brings many direct and indirect benefits, but
two are of particular importance to the economic wellbeing of American
families.
First, higher
education leads to higher wages and more-secure employment. The median weekly earnings
of a full-time, bachelor’s degree holder in 2012 were 63 percent higher than
those of a high school graduate ($1,066 compared to $652). Median earnings were
even greater for those with graduate or professional degrees.
At
the same time, education lowers the chances of unemployment and acts as an
insurance policy against economic downturns. The unemployment rate for workers with
a bachelor’s degree was 4.5 percent in 2012, roughly half of the rate for
people with only a high school diploma and well below the national average.
Second, higher education
significantly enhances economic mobility. Higher education not only pays now in
absolute terms, but helps successive generations climb the economic ladder and
become better off than their parents were.
For example, among children born into the middle fifth of the income
distribution (in 2011, this would have been roughly between $39,000 and $62,000),
only about 12 percent without college degrees end up in the top fifth as
adults. But when children from this group attain college degrees, over 30
percent end up in the top fifth, nearly a three-fold increase relative to those
without a college degree. Likewise, obtaining a college education insulates children
against falling down the economic ladder.
Less than 10 percent of children born into the middle fifth will end up
in the bottom fifth, if they get a college degree. Indeed, with a college degree, almost 80
percent of children end up as well as, or better off than, their parents.

However,
whether a child attains higher education depends critically on family income.
The good news is that overall the
fraction of children completing a college degree has increased markedly over
the past 20 years across all income levels. Unfortunately, disparities by
income remain, and in fact have grown. In 2010, only 12 percent of children
(aged 26-30) whose parents were in the bottom fifth of the income distribution completed
a bachelor’s degree. By contrast, over
half of the children born in the top fifth completed a college degree. And children
at the lower end of the income distribution have not experienced as rapid an
increase in college completion rates.
This relationship between family income and college
completion of children implies that income inequalities today carry on to the
next generation. Increasing access to college education, regardless of family
income, provides all Americans an opportunity to climb the economic ladder.
The uneven increase in the rate of college
attendance is partly due to the rising cost of higher education. Over the
past several decades, funding of higher education has shifted from state
assistance—in the forms of grants and subsidies—to increased tuition borne by
students and their families. For example, at public four-year colleges and
universities, tuition and fees (as a percent of revenue) has doubled since
1987, while the proportion funded by state and local governments has fallen by
about one-third. Today, facing higher
tuition and bearing a greater share of college costs, the average undergraduate
student loan borrower graduates with over $26,000 in debt. The rising financial burden has made going to
college increasingly difficult for the children of working and middle class
families, whose college attendance increasingly lags behind that of wealthier
families. And at the same time, too many working and middle class students who
enroll in college do not complete their degrees, further increasing the gap
with their wealthier peers.
The President implemented several policies during his first term
to increase access to a college education, including
increasing
the maximum Pell Grant award for working and middle class families by more than
$900, creating the American Opportunity Tax Credit, and enacting effective
student loan reforms eliminating subsidies to banks and redirecting those
investments towards making college more affordable. Building on these initiatives, the President
last week outlined a new agenda aimed at driving better college performance,
promoting innovation and completion in the marketplace, and ensuring that
student loan debt is manageable. Combined,
these efforts will make higher education more affordable and higher quality for
middle and working class families, helping more students graduate with a degree
that empowers them to achieve a better future.
And by fostering educational opportunities of middle and working class
Americans, the President is ensuring a more skilled workforce and long-term
economic growth for all Americans.
Wesley Yin
is the Deputy Assistant Secretary for Microeconomic Policy at the U.S.
Department of the Treasury.