We’ve written extensively in this blog about the burden facing many Americans with regard to student loan debt.  According to the Federal Reserve, nearly 7 out of 10 U.S. college students borrow money to pay for tuition or expenses. Currently, this outstanding student loan debt exceeds $1.4 trillion. More than 44 million Americans hold college debt. Of those, an estimated 11.2% of accounts are in delinquency (90+ days past due).
In the face of mounting student loan debt, many now question the value of a college education. In an effort to address this question, the Federal Reserve Bank of St. Louis recently published a report entitled: The Demographics of Wealth-How Education, Race, and Birth Year Shape Financial Outcomes.
This is Part I of a two-part series covering the Fed’s report. In today’s post, we will look at the direct impact a college degree has on income and wealth accumulation.
For simplicity, the authors separated more than 6,000 families into two groups: families headed by someone with at least a four-year college degree and families headed by someone whose higher education is less than a four-year college degree.
Share of families with college degrees
Figure 1 below looks at U.S. families with four-year and postgrad degrees over a 27-year period from 1989-2016.

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As you can see, in 1989, about 23% of families were headed by someone with a four-year degree. By 2016, that share had risen to 34%. With regard to families headed by someone with post-graduate degrees, the share grew from 9% to 13% during the measured period. Among white families (not shown in any of the Figures), the share of families with a four-year degree or more increased from 26% to 38%. At the same time, the share increased from 13% to 25% among families of all other races and ethnicities.
Family income
Both income and wealth gaps between grads and non-grads have grown over the past three decades. As you can see in Figure 2 below, the income received by the median college grad family increased from almost $88,000 in 1989 to about $92,000 in 2016 (annualized rate of 0.18%). Among non-grad families, the average percentage increase was roughly the same (0.15%), but amounted to an increase of only $1,557.  The share of all income earned by college grad families increased from 45% to 63% between 1989 and 2016. This reflects the fact that both the number of grad families and their average income increased at a faster rate than those of non-grads.

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Family wealth (net worth)
Figure 3 shows that median college grad family net worth rose from around $238,000 to $291,000 over the 27-year period, an annualized increase of 0.8%. At the same time, non-grad median family wealth declined from about $66,000 to $54,000, an annualized decrease of 0.7%. This significant decline left median non-grad family wealth at just 18% of median college grad family wealth. This is down from its peak of 37% in 1995. The share of all wealth owned by college grad families increased at a faster rate than income, going from 50% to 74% between 1989 and 2016.

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The declining fortunes of non-grad families
As we can see from Figure 4, non-grad family economic and financial status is slipping. The decline is most notable for wealth than incomes, but undeniably downward.

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The data in this post confirms that a college degree itself is a critical driver with regard to income and wealth accumulation. But in next week’s post, we will dig deeper, looking at secondary variables, or “inherited demographic characteristics” that impact relative differences in income and, especially, long-term wealth accumulation.