May 10, 2019 / 4:16 PM / 14 days ago

Securing the U.S. middle class may depend on college. Does a degree still pay off?

WASHINGTON (Reuters) - Even at the worst of the 2007 to 2009 recession the unemployment rate for college degree holders barely reached 5 percent, half of what the less educated faced and proof of the value of higher education.

FILE PHOTO: A graduate holds their mortarboard cap after a commencement ceremony at the University of Southern California (USC) in Los Angeles, California, U.S., May 12, 2017. REUTERS/Patrick T. Fallon/File Photo

The rest of the story: student loans have topped $1.5 trillion, much of that accumulated in the last decade. That debt load may be eroding the well-documented returns to education and confounding the idea that college remains a sure path to the middle class, researchers at a Federal Reserve conference said this week.

Debt, paying too much for a degree of low market value, and other issues represent “downside risk” to investing in higher education, Chicago Federal Reserve bank president Charles Evans said on Thursday, an unusual critique from a PhD economist at an institution that often preaches the need for a better-skilled workforce.

“Students may question whether going to college will be worth it,” Evans said. “I am concerned that the ... risks may compound more and lead to greater downside,” particularly for “nontraditional” students including recent immigrants, older students, or first-in-the-family college attendees.

The discussion over a two day Fed research session on the future of the middle class comes amid a national debate about jobs, wages and student debt that is likely to continue through next year’s presidential race.

Democratic candidates have floated proposals from free tuition at public colleges and universities to full-on debt forgiveness, guaranteed jobs and a higher minimum wage. President Donald Trump has focused on tariff, trade and tax policies he says will restore opportunities for the less educated.

To the researchers gathered here, student debt represents a somewhat disturbing development for the otherwise durable policy conclusion that education pays off, a notion Brookings Institution fellow Adam Looney called a “central tenet of the American Dream.”

That remained the general mood.

Asked about the best way to address the lagging employment of adult men, in steady decline since the 1960s, University of Maryland economist Melissa Kearney replied, “increase the number of college graduates. The fact of the matter is that college graduates work at higher rates.”

Yet researchers also recognized the conundrum raised by rising student debt.

The Fed conference focused broadly on the middle class and how to revive both stagnant earnings for middle-income families and what are seen as the narrowing chances for poor families to move up.

Fed Chairman Jerome Powell called those issues “crucial” for a U.S. economy where economic outcomes seem ever more constrained for those not born in the right place or to the right family.

Yet the standard solution, to go to college, is now often coupled with debt that researchers suggested may actually lead to lower lifetime wealth accumulation, particularly for racial and ethnic minorities.

While the number of people with college degrees in the U.S. continues edging higher, now representing around a third of adults over 25, the trend has been supported by the expansion of student lending programs that have liberally adapted to rising tuition and growth in for-profit and online programs.

For an average four-year undergraduate degree, or an average student loan of around $35,000 for 44 million borrowers, the deal may still be a good one, Looney suggested.

But Looney and others noted that graduate students face much higher bills, while those who borrow less for two year degrees or technical certificates can also struggle because of lower wages.

About half of those who attended college took on loans to do so, and a fifth were behind on their payments as of 2017, according to the New York Fed.

Debarshi Nandy, associate finance professor at Brandeis University, said research on student debt holders versus those who earn degrees without borrowing shows that they invest less, and invest less aggressively, because they need their income to make loan payments.

“Even if you are earning money, (investing) gets disrupted very early in your career,” he said, countering research that suggests people with student debt inevitably end up better off because their higher earnings are more than what is required to service the loan.

Yet the alternative may be worse. A college degree, even a two year one, seems increasingly necessary just to hold steady in a world where automation and globalization are depressing wages and employment for the less skilled and less educated.

“You can’t afford to go to college,” said Julie Morgan, a researcher at the Roosevelt Institute who was among those suggesting policies to make college more affordable rather than simply easier to finance. “But you can’t afford not to.”

For graphic, click - tmsnrt.rs/2VyU3jr

Reporting by Howard Schneider; Editing by Meredith Mazzilli

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