June 26, 2012 > The economic case for higher education
The economic case for higher education
Submitted By U.S. Treasury, Office of Public Affairs
A report released on June 21 by the U.S. Department of the Treasury, with the U.S. Department of Education, examines the economic case for higher education. As the President calls on Congress to keep interest rates low for the 7.4 million borrowers who are expected to take out subsidized Federal student loans next year, this report demonstrates the economic case for higher education as a source of both economic opportunity and mobility. Without Congressional action, interest rates on new subsidized loans will double, increasing from 3.4 percent to 6.8 percent on July 1.
The data and analysis confirm that higher education is critical for socioeconomic advancement and an important driver of economic mobility. As state budgets have repeatedly come under stress, state support for higher education has declined as a share of funding for public higher education, increasingly pushing students and their families to count on education grants and affordable loans through Federal financial aid. Because the Federal government cannot address this issue alone, the President has also called on states and colleges to come together around our shared responsibility for college affordability.
With middle-class families facing greater financial stress and more students than ever trying to achieve their educational goals, access to higher education should be a national priority, not a luxury. Where we make our investments demonstrates our priorities. In order to ensure access to higher education, we must all do our part toward our shared responsibility to make these critical investments in today's students and tomorrow's workers.
There is substantial evidence that education raises earnings. The median weekly earnings for a full-time, full-year bachelor's degree holder in 2011 was 64 percent higher than those for a high school graduate ($1,053 compared to $638).
The earnings differential grew steadily through the 1980s and 1990s. Recent evidence suggests that today's earnings gap is the highest it has been since 1915, the earliest year for which there are estimates of the college wage gap.
Higher education is important for intergenerational mobility. Without a degree, children born to parents in the bottom income quintile have a 45 percent chance of remaining there as adults. With a degree, they have less than a 20 percent chance of staying in the bottom quintile of the income distribution.
Federal financial aid represents 55 percent of all financial aid to undergraduates at two- and four-year institutions.
The two largest components of Federal financial aid are Pell Grants and Stafford loans. Economic evidence suggests that increased grants and affordability of student loans both increase college-going.
Pell Grants provide eligible undergraduate students with grants for higher education. The Obama Administration has increased the maximum Pell Grant by over $900 and provided support to more than 3 million additional students.
Stafford loans are part of the Federal student loan program for undergraduate and graduate students. Forty-four percent of all Stafford loans are subsidized, meaning that students do not pay interest while in school.
For more information, visit www.treasury.gov