As the Great Recession crippled the labor market in the late 2000s, millennials tried to dodge disappointment by investing in their education. They took out thousands of dollars in student loans in the hopes that the investment would pay off when the economy recovered.
Nearly a decade later, it seems the risk has yet to pay off. According to research from the Federal Reserve Bank of St. Louis, Americans born in the 1980s have a net worth that is 34 percent lower than what previous generations had at the same age. Their inability to invest in property during the housing crisis remains a major stumbling block in their “wealth life cycle.”
Quartz’s Allison Schrager suggests that millennials’ investment in education will later prove to be a lucrative investment for them.
“Previous generations also took out loans, but they used that money to buy homes instead of investing in education,” Schrager writes. “In the modern economy, education may be a better bet than housing.”
She continues to note that men with a college degree earn close to $1 million more than those who don’t during their lifetime. However, this statistic doesn’t fairly measure the value of a college degree over the value of an apprenticeship, trade school, or other nontraditional route and it doesn’t include those who dropped out. According to the Institute of Education Statistics, four in 10 college students drop out before completing their degree.
During the Great Recession, high schoolers were counseled to take the college track in order to find a lucrative career, and many followed this advice. Forty percent of millennial workers (ages 25-29) had at least a bachelor’s degree in 2016, and yet during that same year, 51 percent of college-educated millennials said they were underemployed.
Surely, their salaries will continue to rise over the course of their careers, but what is happening in the meantime?
Debt-ridden millennials are spending thousands every year on rent and postponing the purchase of a house. This means they are missing out on the valuable mortgage interest deduction and equity they could be gaining in a house. They may be saving as much of their income or more as previous generations, but the longer they wait to buy a house, the longer they are funding their landlords’ retirement and postponing their own.
Meanwhile, trade and blue-collar jobs tend to pay more right off the bat, meaning those who took this route were able to stash money toward a house sooner, without the huge debt that comes with most four-year colleges.
For cash-strapped millennials who didn’t have the capital to buy a house, it makes sense that such a large segment opted to prepare themselves for the economy of the future by turning to academia. The problem is that too many millennials were not thinking about the economy of the future when they went to college. In the real world, many popular degree programs have very little value in the modern economy.
College is only a good investment when students have a clear, attainable path in mind. Otherwise, it’s just another pathway to debt.
