The role that a college education plays in enabling low-income students to eventually earn more than their parents has shrunk as public universities raise tuition in the face of government cutbacks, New York’s top banker warned yesterday.
William C. Dudley, president of the Federal Reserve Bank of New York, said, “Colleges that offered the largest number of low-income students pathways to upward mobility have become less accessible to them during the 2000s. . . . Continued increases in college costs and debt burdens could inhibit higher education’s ability to serve as an important engine of upward income mobility.”
Dudley, citing research by a Stanford University economist, said stagnant wages and income inequity have reduced the chances that poor students will eventually have higher earnings than their parents.
He said the share of children who earn more in real terms than their parents has fallen from 90 percent to 50 percent in the past 50 years.
Dudley made his comments to reporters as the New York Fed released new data on college loans and how they affect home ownership.
The bank found that college debt increased more than fivefold from 2003 to 2016, with more students taking out loans and borrowing larger amounts on average.
College debt totaled $1.3 trillion last year, up 170 percent from 2006, the bank said. Five percent of the borrowers account for 30 percent of the debt.
Delinquency rates for student loans remain high even as late payments on mortgages, auto loans and credit cards have dropped. College-loan borrowers who have the most difficulty either graduated or left college during the 2007-09 recession, New York Fed economist Donghoon Lee said.
Rajashri Chakrabarti, another bank economist, said people with significant college debt are “much less likely to own a home at any given age than those who graduate from college with little or no debt.”
She cited 2016 data showing that about 26 percent of people with college loans owned homes by age 30, while about 33 percent of college attendees with no loans were homeowners. However, both groups were far ahead of people who never attended college: Less than 20 percent are homeowners by age 30.
College debt “appears to dampen homeownership rates among those with the same level of education,” Chakrabarti said.
These national trends are likely playing out in the metropolitan region, added Wilbert van der Klaauw, the bank’s senior vice president for microeconomic studies. The New York Fed did not release regional data yesterday.