August 15, 2024
By Ainsley Weber
During my final semester at Yale, I stumbled across popular course offerings like “Japanese Screens” and “Anthropology of Outer Space.” In fact, these courses were more than popular—students competed to snag a spot in such coveted classes. At the same time, I was hard-pressed to find an accounting class listed in the course catalog, even though “Accounting” presumably falls at the beginning of the alphabetical list.
Although wonderfully well-rounded, my experience with the course catalog makes me question what career advantages American students are paying exorbitant amounts to receive. After all, recent commentary and research increasingly ask if graduates get less from a college education than in the past, even as they spend more.
But then reread that line, and it also echoes two years’ worth of inflation woes—consumers paying more money for fewer goods. In other words, could the four-year Bachelor’s degree that stands as the pillar of academic achievement contribute to inflation?
Services inflation contributed significantly to headline PCE inflation over the last three years, so perhaps a closer inspection of the small but ever-growing education component is merited.
Since the 1995–1996 academic year, the “sticker price” at four-year institutions rose over 70%. Fortunately, need-based and merit-based financial aid drove down the percentage of students who pay the full sticker price—only 26% of in-state public and 16% of private nonprofit college students paid the full price in 2019–2020, compared to 53% and 29%, respectively, 25 years earlier. However, money to fund that difference between sticker price and price paid comes from somewhere, and what doesn’t come from the university still constitutes more dollars (mostly public grants) chasing the value of increasingly uncompetitive degrees.
Of course, the rising cost of college alone does not make higher education “inflationary,” especially if that rising cost comes with more value received for every additional dollar spent. But if better postgrad outcomes do not follow the higher costs, the thousands spent by millions of students on higher education annually simply throws excess dollars into the economy as “money for nothing” so to speak. By extolling the virtues of higher education and nourishing a healthy appetite for student debt, perhaps Americans have overstimulated demand for college education. Excess demand would not only push up college prices, but it could create other economic excesses by funding superfluous college administrative positions or other unproductive functions.
Considered against the Burning Glass Institute’s 2024 report documenting widespread underemployment among college graduates, news of corporate job postings dropping degree requirements, and anticipated high demand for jobs that only require a high school degree, the rising cost of college stops making sense—are student and parent resources, loans making up almost 10% of all household debt, and $24 billion in annual scholarship and grant funding paying for degrees producing underwhelming results of underemployment, lower college wage premiums, and more graduates with majors like public safety or recreation studies than society needs?
What the New York Federal Reserve measures as “underemployment,” or the percent of college graduates working in a position that does not require a college education, has fluctuated around 40% over the past decade. Following the Great Recession, underemployment among recent college graduates increased from 41% in 2008 to 47% in 2012. Underemployment among recent college graduates still hovers around 40%, better than its post-Great Recession peaks, but it’s undoubtedly concerningly high.
Moreover, the recent Burning Glass report sheds new light on underemployment, especially the degree experienced. Of those underemployed five years after graduation, Burning Glass classifies 88% as “severely underemployed,” or working in jobs that only require a high school degree. In other words, about 35% of all college graduates work in a job that only demands a high school degree.
Oddly enough, even though 40% of recent college graduates are unemployed, those same underemployed workers still enjoy a 25% premium in median earnings over peers with only a high school degree. Similarly, the bottom 25th percentile of earnings for Bachelor’s degree-holders still see a wage premium over high school graduates. In other words, a subset of underemployed college graduates appear to receive higher pay to perform the same job as those with only a high school degree, effectively inflating these graduates’ earnings.
In addition to underemployment, a college degree simply does not provide the job security it once did. According to FRED, the Federal Reserve Bank of St. Louis’ online public database, what might be called the unemployment premium of a college degree fell steadily since the Great Recession, save a spike during the pandemic. Specifically, the difference in unemployment rates between bachelor’s degree-holders and those with less than a high school degree has narrowed in the last 20 years. Whereas it hovered around 5% prior to the Great Recession, it fell closer to 3% before the pandemic and is approaching 2.5% in the aftermath of the pandemic. The difference between college graduates and high school graduates followed a similar trajectory post-Great Recession, save the pandemic-induced spike.
So why are we taking out so much debt and funneling billions in grant aid to generate economic demand for degrees that might prove unnecessary?
Falling incremental demand for the college-educated is consistent with a recent BLS report on anticipated job openings in the coming decade. According to the 2024 BLS report, jobs that do not require beyond a high school degree will see the most job openings of any education level in the next ten years—7.1 million openings a year. And that does not include the 5.7 million openings with no education requirements.
In comparison, the BLS projects about 3.3 million openings annually in jobs requiring a bachelor’s degree—just under half as many as those which only require high school. However, the number of young adults who fall into those two categories is much closer to parity. Whereas 45% of 25- to 29-year-olds held only a high school degree (calculated as share with high school or more minus the share with associates or higher) as of 2019, 39% held a Bachelor’s degree or higher. Consider also that, for the next ten years, between 2 and 2.5 million students will graduate with a Bachelor’s every year.
Comparatively, this means the US will offer twice as many jobs for high school as it will for college graduates, with near parity in the applicant pool for each. In absolute terms, it means recent graduates alone can take up much of the annual openings in jobs requiring a Bachelor’s, say nothing of underemployed degree-holders looking to switch jobs and general labor market churn. As a result, what sounds like an emerging oversupply of college graduates could very well translate to lower earnings as degree-holders become a dime a dozen.
Even in positions that once required a college degree, job-seekers may soon find that a degree no longer gives an edge. According to another Burning Glass Institute report, the count of job postings from which employers dropped degree requirements increased fourfold between 2014 and 2023. The report caveats that changes in job posting requirements have not necessarily translated to changes in the backgrounds of candidates actually hired; nevertheless, it does find that, in the year following a drop in degree requirements, the firms studied saw a 3.5 percentage point increase in the share of workers without a Bachelor’s degree.
How, then, does underemployment and the associated lower earnings jibe with the ever-growing cost of a college education? Why are student resources, loan funds, and federal grants devoting more and more money in hopes of an increasingly questionable return on investment?
Business cycle theories observe that higher levels of debt funding artificially boost asset prices by inflating demand; similarly, research by the New York Fed suggests that every dollar increase in federal student loan caps corresponds to a 60 cent increase in the cost of tuition. In other words, make funds available and academic institutions will eat them up. Rather than coming from organic market demand—which shows a much greater need for skills-based workers with technical prowess than art history majors—the demand for college degrees appears to come from a readiness for debt and a historically high faith in the promise of higher education.
Defer to experts on what creates inflation, and defer to personal finances and ambitions to decide if college is right for you; but perhaps America needs to question if college is, in fact, right for everyone.
Ainsley Weber is a recent Yale graduate who works at the Federal Reserve Board of Governors. The analysis and conclusions set forth are her own and do not reflect the views of the Board of Governors or the staff of the Federal Reserve System
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