Higher education is one of the “cornerstones” of economic opportunity, Janet L. Yellen, chair of the Federal Reserve Board, said on Friday in an
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Higher education is one of the “cornerstones” of economic opportunity, Janet L. Yellen, chair of the Federal Reserve Board, said on Friday in an unusual and closely watched speech about growing inequality. But her remarks, given at the Federal Reserve Bank of Boston, did not cast higher education’s role in an entirely favorable light.
The earnings premium of a college degree has grown, Ms. Yellen said in her prepared remarks, and the “net returns for a degree are high enough that college still offers a considerable economic opportunity to most people.”
But college prices have risen much faster than family incomes, she added. College affordability and growing student debt present challenges, especially for the less-well-off. “I fear,” Ms. Yellen said, “the large and growing burden of paying for it may make it harder for many young people to take advantage of the opportunity higher education offers.”
Ms. Yellen used this chart to illustrate her point:
It shows that student debt is a bigger burden for families with less wealth, and that the disparity has grown over time.
There are many ways to look at the impact of student debt, and Matthew M. Chingos isn’t a huge fan of this one. “The chart’s not wrong,” said Mr. Chingos, a senior fellow in the Brookings Institution’s Brown Center on Education Policy. “But I’m not sure it’s the most helpful way to look at it.”
The chart shows student loans compared to annual income, but education pays off over a lifetime—as Ms. Yellen noted in her remarks, Mr. Chingos said. “No one says, ‘I make only $50,000 a year, and my mortgage is $300,000, isn’t that crazy?,’” he said.
Mr. Chingos took the lifetime perspective in a paper he wrote with Beth Akers, also of Brookings. They found that the median borrower spends about 4 percent of monthly income on student-loan payments, a percentage that has stayed pretty flat over the past two decades.
The most important question, Mr. Chingos said, is whether the benefits of college outweigh the costs over a lifetime. But it is good, he added, to ask the question for different groups of students. After all, just because college pays off on average doesn’t mean it pays off for everyone.
