College enrollment is posting its eighth consecutive year of declines

A lot of ink has been spilled over the perceived value of a college education. Much of that debate is focused on two issues: (1) younger generations are burdened with massive amounts of student debt, and (2) the lack of actual education taking place on college campuses, due to (a) treating students as consumers to please rather than teach, and (b) identity politics metastasizing traditional subject matters, rendering college credentials useless to the real world. All of these factors combined contribute to younger, mostly college-educated generations ironically not being able to function well or even normally in the US economy.

I can’t imagine encouraging our daughter not to attend college, but I frequently consider encouraging her to go abroad for her college studies as many US colleges are beyond parody at this point.

One data point that is oddly left out of discussions of the value of education is that people are “voting with their feet” already. This is not merely a theoretical matter. Enrollment at US colleges and universities has been crashing for several years now, across sectors (for-profit, non-profit, public, private, community colleges). There was an artificial up-tick in non-profit enrollment due to a large for-profit college transitioning to non-profit status (i.e., it makes for a false blip in the data). But the trend is clear.

It is going to be interesting to see how many private colleges – many of which are burdened with bonded debt of their own from the facilities arms race, constructing luxury accommodations for their student-consumers – will manage their way through significant cumulative declines in enrollment. Will they change how they operate to protect their brands, or will we be seeing a lot of financially distressed postsecondary institutions in coming years? (I suspect we will.) Will this current era be like the 1960s, where everyone smokes weed and obsesses over politics, only to ultimately grow up and start being conventionally successful? If there isn’t a change, the risk to this element of our society is very real.

The problem of underemployed college grads

I know I promised everyone that I would use this as my personal blog and not geek out about economic data, but I can’t help myself when it comes to education.

Articles questioning the value of a college education have practically become their own genre in journalism. The media tend to cover this topic with the same hysterical tone with which they write articles about brain-eating amoebas in the drinking water supply. At the end of the day, parents don’t know what to believe as they consider wiping out their home equity so Junior can get a degree.

The Wall Street Journal has a fascinating, if depressing, article today that gets into Federal Reserve data on the wage performance of college graduates. The data suggest that college graduates are not underperforming previous generations as a monolithic group, but are starkly divided into haves and have-nots.

Here are some statistics from the article (which is unfortunately only available to WSJ subscribers):

  • The share of Americans between the ages of 25-29 with a bachelor’s degree has risen to 37% from 29% in 2000.
  • College and graduate school tuition have risen at three times the rate of inflation since 2000.
  • Student borrowers leave college with $30,000 of debt on average.
  • An increasing percentage of student borrowers are leaving college with more than $50,000 in student debt.
  • The wage premium for college graduates is at an all-time high: “Americans with a bachelor’s degree—but not a graduate degree—earned an average $77,239, nearly $32,000 more than the average earnings of workers with only a high-school diploma.” College graduates are also more likely to be employed than high school graduates. (Though I am not sure how useful that statistic is in an economy where unemployment in general is so low that there are more job listings than people searching for work for the first time in American history.)
  • But the *average* earnings for college graduates has become a somewhat meaningless number because roughly 4 in 10 college graduates currently have jobs that have historically been done by people with only a high school diploma (and that competition artificially depresses wages for people who only graduated from high school as well).

So 40% of college graduates are underemployed relative to their level of education and are working in lower wage jobs and the other 60% is responsible for driving the wage premium to a record high. Clearly, the question should not be “Is college worth it?” but “For whom is college worth it?”

Then there is the issue of wealth (net worth) of college graduates vs folks with a high school diploma. This is what is really shocking:

College graduates still have more wealth than nongraduates, as they have had for decades. In 2016, the typical household headed by someone with a bachelor’s degree but no graduate degree had more than twice as much wealth as the typical household headed by a nongraduate, according to a St. Louis Fed paper released in January, which analyzed data from the Fed’s Survey of Consumer Finances.

But that wealth premium has declined substantially for younger generations of college graduates, particularly those born in the 1980s. Among some demographic groups, there is little or no wealth advantage at all.

The typical black family headed by someone with a college degree—but no graduate degree—born in the 1970s and 1980s barely had any more wealth than the typical black household headed by a nongraduate. Hispanic households of the same age groups have only a small wealth premium.

The paper concludes: “Among families born in the 1980s, the college wealth premium weakens to the point of statistical insignificance with the single exception of white bachelor’s-degree holders, which remains positive but much smaller than that enjoyed by previous cohorts.”

Many news reports push the cliche of the millennial liberal arts graduate with six figures of student debt that is working as a Starbucks barista. But looking at the data, it would seem that many of the college graduates that are taking lower wage jobs are minorities, not privileged hipster philosophy majors. That’s a far more difficult problem to solve.