Economists Find Career Earnings of Low-Income Graduates Lag
College is supposed to be the great equalizer — the way to pull yourself out of a low-income background and position yourself for a better shot at the American Dream.
But does it work?
Yes, somewhat, but college is not as powerful as you might believe. Although low-income students do get an earnings boost by getting a bachelor’s degree, they don’t come close to students from middle- or high-income backgrounds with the same degrees, according to a new study.
Those students end up earning 162 percent more over their careers than those who stopped their education after finishing high school, said one of the researchers, economist Brad Hershbein of the W. E. Upjohn Institute for Employment Research. But college graduates from low-income backgrounds only increase their lifelong earnings 91 percent.
“An increase of 91 percent is still pretty good,” but it is much less than the 162-percent boost, said Hershbein.
That difference in lifetime earnings would likely be a shock for people who grew up poor and figured putting the effort into earning a bachelor’s degree would help them like anyone else finishing college.
Along with economist Tim Bartik, Hershbein tracked people from age 25 to age 62, using family data collected in the national Panel Study of Income Dynamics. The researchers identified 25-year-olds from low-income backgrounds by focusing on families with children that qualified for free or low-cost school lunches through the federal assisted school lunch program. Their incomes were slightly above the poverty line. To meet the school lunch criteria, a family of four would have a $36,000 income, said Hershbein.
“The earnings gap between the poor and nonpoor college graduates also widened as time passed,” Hershbein said in a recent report for the Brookings Institution. Immediately after college, the pay the low-income grads received was about a third lower than graduates who had come from families with more money. But by the time people reached midcareer, the advantage of a college education slipped. In their 40s, the college graduates from low-income backgrounds were making only half of what graduates from nonpoor households were earning.
By their late 50s, earnings for college graduates who grew up poor decreased substantially. Their earnings fell to the same level as at the start of their careers, the researchers report. The graduates who had been raised by higher-income families experienced some decline late in their careers, but a much smaller decline.
The researchers have not yet identified causes for the vast difference in pay and are continuing to dig through data.
One possibility could be that people raised in higher-income families are more likely to pursue graduate degrees after receiving bachelor’s degrees. People with graduate degrees tend to make more money. But the researchers determined that advanced studies were a small factor in the immense difference in earnings.
Hershbein said the choice of majors and careers could be a factor, although he is not yet certain. It could be that the poor are attracted to careers where they help others — positions that often are low-paying. If that’s the case, students need to be aware that although they are going to college they may not get the level of pay they expect based on pursuing a bachelor’s degree, he said.
That awareness is crucial as students take on student loan debt. As a rule of thumb, monthly payments on student loans after college should require no more than 8 percent of a person’s monthly salary.
Another possibility has been suggested by other studies: Students from low-income backgrounds tend to choose lower-quality colleges. Studies show that the quality of a college — not just a degree — matters. More selective colleges may provide a broader network for students, giving them advice on how to advance and introductions to people who can help them. In fact, in one study, economist Alan Krueger and Stacy Dale found that attending elite colleges was not significant in outcomes for affluent students but helped low-income students considerably. Krueger noted that people from more affluent backgrounds have networks through their families and other contacts that can help them advance. Low-income students, without built-in networks, can gain access to influential networks through highly selective colleges.
Hershbein said low-income students that would qualify for more selective colleges often don’t apply to those colleges because they have not had contact with them.
Growing up in low-income communities, the students haven’t seen their friends going anywhere but state college nearby, he said. And selective colleges also “are not reaching out to low-income students.”