Employer Engagement

Degree Completion, the College Wage Premium, and Upward Social Mobility

By Carol D’Amico, Executive Vice President for National Engagement and Philanthropy, USA Funds

Research teDAmico-300dpills us that young people go to college to improve their chances of getting a good job and earning the much-desired college wage premium.  Research also shows that attaining a college degree can help break the cycle of inter-generational poverty.

But there is a catch to earning the vaunted, college wage premium and moving up the socioeconomic ladder. You have to complete the degree. Nationwide, four out of 10 college students will fail to earn their bachelor’s degrees within six years of their initial enrollment. The sad truth is that the national dropout rate masks huge discrepancies in completion rates among different demographic groups.

Nearly half – 48 percent – of Hispanic students will fail to earn a bachelor’s degree within six years. The non-completion rate for black students seeking four-year degrees is 59 percent.  Four out of five dependent undergraduates from lower-income families fail to complete their bachelor’s degree by the age of 24, and more than eight out of 10 community college students fail to earn an associate degree within three years.

Non-CompletionRatesIncome projections compiled by the U.S. Census Bureau show that lifetime earnings are significantly higher for workers who earn bachelor’s degrees compared to the average earnings of those who have a high school education.  A two-year associate degree also offers a wage premium, albeit a smaller one.

IncreasedEarningsThe Census projections show that some college offers a modest boost in lifetime earnings, but that increase may not be enough to sufficiently offset the investment in college, especially when ever-present student loans are factored into the equation. In fact, an analysis by researchers at the Federal Reserve Bank of Cleveland found that having some college doesn’t appear to budge the economic needle. “By going to college, one is likely to end up in a household that earns a considerable wage income premium throughout its working life but which also has a sizeable amount of college debt early on, say Cleveland Fed researchers David Carroll and Amy Higgins, but “there is one education group for which this does not hold: those with some college but no degree. These households, which on average make up 32 percent of those 22 to 29 years of age and 25 percent of those 30 to 65 years of age, have some college debt but get little to no labor market benefit.”

Thus, we shouldn’t be surprised by the Brookings Institution’s finding that 30 percent of Americans who are born into poverty and who have only a high school education are still living in poverty at the age of 40, while only 12 percent will make it to the top income quintile by age 40. In contrast, just 16 percent of the Americans who are born in poverty but who do complete a college degree will find themselves in the bottom income quintile at age 40, while 41 percent will be earning enough to enter the ranks of the top two quintiles of family income.

Nor should we be surprised to learn that college degrees are associated with higher levels of savings and asset accumulation among American families. According to the Federal Reserve’s 2013 Survey of Consumer Finances, the median net worth (gross assets minus debts and other liabilities) for households headed by a college degree holder was $219,400 – that’s more than four times the median net worth — $52,500 – of families headed by individuals with only a high school education. The median net worth for households headed by college noncompleters totaled only $46,900.

Clearly, going to college can be a game changer for the nation’s disadvantaged, but only if they complete what they started, whether they’re seeking a bachelor’s degree, a two-year associate degree or even a specialized skills certificate. At the same time, higher education levels can be a game changer for the American business community, which faces a widening shortfall of skilled workers in an increasingly knowledge-based economy. Policymakers, community leaders, educators, and employers have both a moral and economic imperative to work together to identify and counter obstacles to degree completion confronting not only freshly-minted high school graduates but also the nation’s 36.2 million working age adults who never finished college.

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