Is College Still Worth It? Interview with Federal Reserve Analyst Ana Kent

Dan:     My guest today is Ana Kent, who together with co-authors William Emmons and Lowell Ricketts, published a study in the Federal Reserve Bank of St Louis Review entitled, “Is College Still Worth It? The New Calculus of Falling Returns.” Ana Hernandez Kent is a policy analyst for the center for household financial stability at the federal reserve bank of St Louis. She conducts primary and secondary research and data analysis on household balance sheet issues. Her primary research interests at the fed include economic disparities and opportunity wealth outcomes class and racial biases and the role of psychological factors in making financial decisions. Kent received her PhD in experimental psychology with concentrations in social psychology and quantitative methods and behavioral sciences from St Louis University. Kent received her Master of Science in experimental psychology from St Louis University and her bachelor’s degree in psychology from the University of Notre Dame. Anna, welcome to the podcast.

Ana:     Thank you, Daniel, and glad to be here.

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Dan:     Would you like to tell us first a little about your role at the Federal Reserve? I should tell you that I’ve never had anyone from the Federal Reserve on this program, and in fact, most of the people that we have on the program, but not all, are academics working at an academic institution. So it’s unusual for us to have someone from outside of academics and we’ve never had someone from the Federal Reserve before. I think the audience would find it interesting to hear a little bit more about your role.

Ana:     Absolutely. Well, first let me begin by saying since you have someone from the Federal Reserve System, I have to have this disclaimer, which is that anything I say on this podcast reflects my own views and not necessarily the views of the Federal Reserve System, the Board of Governors, or the Federal Reserve Bank of St Louis. So with that being said, yeah, you basically have my bio in a nutshell there. I work as a policy analyst for the center for household financial stability, and basically what that means is that I work on understanding the state of family’s economic health, so which families are thriving and which are struggling.

Dan:     In your study, which I found startling, I shared it with a number of people who found it equally intriguing, and we immediately thought we need to reach out to the authors and have them talk about it. In the study, you appear to be doing something new: examining college as it relates to wealth, not college as it relates to income. Do I have that right? And if so, can you give us some detail about your findings?

Ana:     So actually we looked at both income and wealth and converse because as you say, that’s more typical. It’s easier to get data about income and it also gave us a bench line to compare with other studies. But then like you said too, we moved on to something that hasn’t been done, typically – we moved on to wealth. And the reason being is that looking at this measure of financial well-being, basically what a family owns plus what they owe is really important. And that’s because it tells you if the family is going to be able to meet several life milestones like retirement, owning a house, et cetera, being able to support their children financially, and also if they’re feeling financially stable. Most of all, though, it tells us that they’re going to be able to achieve some degree of upward mobility and if their kids are going to, which is a key component of course to the American dream. So we thought it was really important to focus on wealth.

Dan:     What originally signaled to you that examining wealth might produce a noteworthy result? That is, you went in this new direction, how did you get that idea in the first place?

Ana:     So wealth and income are, of course, related, but they’re not the same thing. Wealth is inter-generational. It can be passed down from parents to children. And we wanted to examine it more closely, especially because we have really great data on it. We use the survey of consumer finances, which is really considered the gold standard in terms of household balance sheets or wealth for American families. So that was one part, but really the second innovative part of this project was looking at the economic value of college from a generational perspective as opposed to across time. So mostly what people do in this line of work is look across time. So say we look over the past 30 years, how has the value of a college degree changed? And that’s how we started this paper. But then we decided to dig in more deeply and look across generations, not across time. If we look only across time, say compare the 1990s to the 2016 data that we have, we see, yeah, the value of a college degree in terms of wealth is rising. But that’s really misleading. And the reason is that if we break it down and look across generations, say comparing people born in the forties, the fifties, sixties, seventies, and even eighties, we see something different. And that’s that wealth – the wealth premium – is really weakening.

Dan:     And if I understood this study correctly, the differences were more dramatic when they were broken down by race, right?

Ana:     So one of the things that we tried to do as you mentioned – we’re not an academic center, but we do try to do a rigorous work of course – and so we broke down our results controlling for race and ethnicity. And in fact, we looked at the premiums of income and wealth specifically within each race. So we’re comparing whites to whites, blacks to blacks, same cohort or generation within the same generation. So, for example, you could take me a millennial, a white, Hispanic millennial, and you could compare me to a white Hispanic millennial without a college degree. And that’s what we did. So we were really trying to control for those things. And like I said, if we look at income, there seems to be strength there, it’s holding up across generations. So for white millennials, there was a premium of 48% higher income among college grads than non-grads. Among black millennials, it’s even higher, 84%. That’s really good news. But for wealth, as I mentioned, we see that weakness, and the decline is steady and it’s very clear. So it’s been a trend across these generations that there continues to be more and more weakness the younger you go. So our most recent estimates showed a premium of only 42% for white millennials and a tiny 6% for black millennials. Meaning, if you’re a black family born in the 1980s with a four-year college degree, your wealth premium on average, what we would expect is for you to have, is 6% higher wealth than a black millennial family without a four-year college degree. And that’s down considerably from older generations.

Dan:     That’s absolutely remarkable. Now just for clarity, do I have it right – you’re examining the effect of baccalaureate and graduate programs, and that two-year workforce degrees or certificates don’t necessarily produce the results you found?

Ana:     That’s correct. So we’re looking at four-year, terminal, four-year college degrees, versus people without those degrees. That’s the college premium, as we call it. And we also look at postgraduate degree holders versus those with less than a four-year degree. We’re interested in looking into associate’s degrees or two-year degrees in the future. But we didn’t look at them in this particular study.

Dan:     These findings – first, I guess I have two questions about what educators might do in response to these. And the first is what, how do you think these findings should influence educational policy?

Ana:     Sure. So, you know, I think about it in personal terms, honestly. So for example, I was a great student in high school. I was valedictorian of my class and I worked really hard. I knew that college would be expensive in theory, but I sort of always assumed I would get a great scholarship based on my academic record and would basically not have to pay a lot of money. That didn’t happen. So I ended up with over $80,000 in student loans when I graduated. And it’s something that you don’t really think about as an 18-year-old kid. You just are asked to sign some papers and then the money almost magically appears and goes to your school. And so, like I said, you don’t really have to think about it. So basically what I’m getting at in terms of educational policy, again, speaking for myself, I think that it’s important for counselors and financial planners to help high school students, basically kids, who all of a sudden go from a 17-year-old kid to an 18-year-old adult who has their entire financial future in their hands, and telling them to think seriously about financing their future, their college education.

So one thing that I want to mention is that it’s really important. We’re not saying to lower income or to minority students don’t get a college degree. That’s not at all. The message we want people to take from the study instead, maybe think about, think seriously, do you need to go that particular private or for-profit college, or can you perhaps get the same degree and a great education at a public institution? Or can you start out at a two-year community college to save some money and then transfer into a four-year program?

Dan: And the reason you would have this conversation with them is because although they’re going to earn more money as a result of getting the education, so that we don’t want to dissuade them from getting that education, but at the same time they probably don’t grasp the effects on their wealth? If they go certain routes, it caused them to incur more college costs either while they’re in college or as a result of debt after college?

Ana:     Exactly. Yes. So like I said, the income premium is really holding up. So it seems like the market is still valuing college graduates. That seems to be relatively the same to as it was for older generations. But the effect on wealth is different. And there are several reasons that this might be. One is, as you alluded to, the cost of college has skyrocketed compared to other goods, for example. And so that really takes a toll on younger generations’ ability to build wealth and get into assets that are appreciating rapidly and are perhaps more expensive to get into than they were in the past.

Dan:     It does make me wonder about how colleges should approach marketing from an ethical perspective, because right now colleges of course have a tendency to focus on the fact that their income will be higher, and left unsaid are, you know, are the consequences of, for example, the student debt that you will acquire as a result of going to a particular expensive school. It’s true that colleges have to observe certain rules about debt counseling for students. But I’m pretty sure that the debt counseling never drills down to the level, for example, that we’re discussing. And so I’m just sort of speculating out loud whether colleges have an obligation to make their debt counseling more sophisticated in terms of what the real impacts of walking away from school will be for them in terms of wealth, and not just income.

Ana:     Right. And I think that goes back to my personal story. So we are asking these kids to make decisions that they don’t necessarily fully understand but are going, is going to impact their wealth building. Their ability to settle down, to own a home, to start a family in the future. And again, as an 18-year-old kid they don’t necessarily understand the ramifications.

Dan:     What sort of reaction have you had to this study? I know that when I read it, as I said, I was quite startled. I know that there has been some additional media coverage on it and I was just curious what sort of feedback you’ve gotten.

Ana:     Shock mostly. People are surprised that we suggest the premium for older millennials is zero or pretty close to it. But then sometimes we get the secondary reaction on that, fervent agreement, particularly from younger readers who aren’t necessarily seeing the financial returns they think they were promised.

Dan:     My guest today has been an Ana Kent, who together with coauthors William Emmons and Lowell Ricketts, published a study in the Federal Reserve Bank of St Louis Review entitled, “Is College Still Worth It? The New Calculus of Falling Returns.” You can follow the fed on Twitter @stlouisfed. Ana, thank you so much for being my guest today. This has been a real eyeopener and I know that my listeners will find it fascinating as well. Thank you.

Ana:     Great. Thank you very much, Dan, for this opportunity.

Dan: Thanks for joining me. Please feel free to email me with questions, comments, or suggestions for content that you’d like to hear about. You can reach me  Consider stopping by my blog, mortarboardblog,com. The blog contains links to stories that I think will interest you, podcast transcripts, and articles I’ve written. You can also like me on Facebook at Dr. Daniel Barwick or follow me on Twitter @DanielBarwick. Looking forward to talking with you in the next episode.