Making college less risky to boost social mobility

“Higher education, more than ever, is the ticket to the middle class.” So said President Obama last year.

But is it? We know individual investments in higher education pay large dividends. But that is true of many investments that are not easily accessible people with fewer economic resources. Investing in the stock market, for example, generates wealth: but only if you have money to invest in the first place. So it is worth asking whether higher education is in fact succeeding in lowering intergenerational “stickiness” of socioeconomic status.


College, far from the great equalizer


Unfortunately, college appears to be out of reach for many. Just nine percent of individuals born into the lowest income quartile will ultimately earn a college degree, compared to 54 percent in the top income quartile:

Even for those lower-income children who do make it to college, recent work by Brad Hershbein and his colleagues suggests that a bachelor’s degree might be worth less. The disparity in returns is so large that college graduates who were born into poor families have the same chance of staying in the bottom income quintile as people who are born into rich families but don’t complete high school.


Make college a less risky business


How can higher education play a bigger role in supporting social mobility? First, we need to help students make better decisions. For a long time we’ve hesitated to talk about education as a financial investment. But that has a done a disservice to the students who can’t really afford the luxury of turning a blind eye to the economic consequences of their decisions. We need to empower students to make good decisions by publishing data on the labor market returns of each program covered by the federal student aid program.

We also need to remove an invisible barrier to college access: risk. Generous loan limits in the federal aid program paired with a robust private loan market mean that almost any student can find the money they need to enroll in college. In that sense, college is already affordable to all. But college doesn’t always pay off in the long run. Like any investment, it’s a gamble. And it’s a gamble that not everyone can afford to take. Fortunately, there are plenty of ways to reduce the risk of investing in higher education, including a more robust income driven repayment system in the federal loan program, private market financial products that offer insurance to student borrowers, and new business models that offer guarantees to students.

There is no silver bullet solution that can eliminate the stickiness of socioeconomic status. But lowering risks could help higher education to become a more effective engine for mobility.

Note: A version of this piece was previously published on Real Clear Markets.