Does a College Education Still Make Financial Sense? And Who Pays?

Alongside homeownership, a college degree has been widely regarded as one of the most effective ways to achieve the American dream of financial security, even upward mobility.

But college sticker prices have risen steadily, making postsecondary education more expensive relative to median household income. So does it still make sense to invest in a college education? And once people decide to make that investment, how do they pay for it?

Research from economists at the Federal Reserve Bank of Chicago—spotlighted at College as an Investment: Costs, Payoffs, and Financing, a July 11 virtual event from the Bank’s Economic Mobility Project—provided answers to those questions and laid the groundwork for an expert-panel discussion about paying for college and weighing its costs and benefits in the wake of the pandemic.

“Postsecondary education remains one of the best investments for individuals,” said Lisa Barrow, a Chicago Fed senior economist and economic adviser, revisiting previously published research. Most of the benefits, she noted, come via higher lifetime earnings and lower unemployment rates compared to those who do not attend college.

Barrow’s research showed that sacrificing potential earnings while in school, plus paying tuition, ultimately more than paid off.

The event’s second presenter, Gene Amromin, Chicago Fed vice president and director of financial research, showed that the college tuition burden has been shifting from parents to the students themselves, according to unpublished research led by him.

Amromin demonstrated that as home equity decreased following the financial crisis of 2007–08, college payment sources changed from parents borrowing against their homes to students taking out loans. “Declines in house prices limited access to home equity, which then shifted some of the burden of college funding to students” in the form of federal student loans, Amromin said. Availability of these loans “definitely served as a stabilizing mechanism in terms of preserving the ability to enroll in college.”

But the data suggest that the increased debt burden may be limiting those students’ ability to become homeowners themselves, among other potential long-term impacts, Amromin said.

In the discussion that followed these presentations, a key idea that came up was an unfortunate shift in public perception, from student loans being seen as a valuable tool to them being viewed in some cases as “inherently bad” and needing to be avoided no matter what, said Makola Abdullah, president of Virginia State University.

On this page is a full transcript and video replay of the conversation between Abdullah, the Chicago Fed researchers, Lesley J. Turner of the University of Chicago’s Harris School of Public Policy, and Jason Delisle of the Center on Education Data and Policy at the Urban Institute. Also available are presenters’ slide decks, the agenda, and speaker bios. Stacey Vanek Smith, cohost of NPR’s The Indicator from Planet Money, moderated.