The value of a college education has been the topic of heated conversation during the last decade. How much net wealth does a typical college graduate accumulate over their life span, compared with that of a typical high school graduate? We recently came across an article by Paul Tough in the New York Times that goes into detail about actual earning and wealth outcomes for both college grads and individuals who did not pursue higher education.  

When analyzed through the lens of wealth, as opposed to income, the data suggest that the benefits to a college degree are not as significant as we might have assumed. Younger white college graduates — those born in the 1980s — had only a bit more wealth than white high school graduates born in the same decade, a small advantage was projected to remain small throughout their lives. Conversely, black college graduates born after 1980 were experiencing almost no wealth premium at all. 

Across the board, households headed by someone born after 1980, accumulate no significant additional resources beyond those of a comparable family headed by a high school graduate. However, the data suggest that white graduates tend to fare better than their fellow students who are members or underserved or minority populations. 

 “The data suggests that college and postgraduate education may be failing some recent graduates as a financial investment.”

Given this reality colleges and universities are facing three distinct challenges of rising cost of attendance, student debt, and the perception, valid or unfounded, that higher education is no longer a sound investment. Carrying debt diminishes your net worth through simple subtraction, but it can also prevent you from taking important wealth-generating steps as a young adult, like buying a house or starting a small business.  Many college grads a facing the prospect of a debt burden that prevents them from being able to afford ‘leaving the nest’ after graduation.  

The national student debt is approximately $1.6 trillion, and for many borrowers, their debt is a serious concern. Paul Tough highlights that among student borrowers who opened their loans between 2010 and 2019, more than half now owe more than what they originally borrowed. 

When debt is taken into account, the financial benefits of college begin to look less and less attractive. The article’s data suggest that “higher education no longer resembles a safe, reliable blue-chip investment, like buying a Treasury bill. It’s now more like going to a casino. It’s a gamble that can still sometimes produce a big windfall, but it can also bring financial disaster.” 

The majority of the American college-going population attend mostly less selective public institutions, local community colleges or for-profit schools. Students at those institutions are more likely to be rural, Black or Latino, working class or low income or all of the above. “They are less likely to graduate and more likely to incur debt they can’t pay back. For them — a large majority of American college students — the risks they face when they walk into the ‘casino’ are considerably higher.” As Paul Tough writes, “For the nation’s more affluent families (and their children), the rules of the higher education game are clear, and the benefits are almost always worth the cost. For everyone else, the rules seem increasingly opaque, the benefits are increasingly uncertain and the thought of just giving up without playing seems more appealing with each passing year.”  

Given the current state of play, it is understandable that many would-be college students are weighing their options and choosing to forego a college education in favor of a stable income. Many college presidents have advised this author that ‘flat is the new growth’.

It is our contention that a change must be made and we believe that outcome-based financing that is directed at helping students get the training they need to secure a good paying job can help facilitate this change. Furthermore, there are many exciting and good paying jobs that are going unfilled for lack of qualified applicants.     

We believe that funding in-demand, career-focused education is critical to creating opportunity for underserved populations.  The article’s data tells us the less affluent and minority students experience a lesser or negative return on their educational investment when compared to their white or affluent classmates.

This is a reality that has to change and access is an important component of the solution.

Outcome based lending spreads risk more evenly when traditionally the majority of risk is carried by the borrower. Specifically our lending platform delivers solutions that provide latitude for our borrowers to get established in a career and begin earning before they are required to make payments. Loan payment amounts are tied to the student’s earning such that they can afford repayment, and our underwriting is structured such that new borrowers with little or no credit history can get access to educational funding. We designed our products with access in mind, particularly to provide opportunity for individuals who come from disadvantaged backgrounds that might not otherwise have a financial/familial support structure that can assist them in getting established in their career.

Our approach is designed to allow more individuals to ‘get in the game’ with a rule set that is intended to create winners.  

If you would like to learn more about what Outcome can do for your students, please contact us.