Economic Mobility Through

Education

SXSWedu 2015

Katie Bardaro, Lead Economist Jim Wolfston, CEO

THE AMERICAN DREAM

The promise that one can rise, through education and hard

work, to any position in society.

“RISE” to “POSITION”

* the promise of economic mobility is a key incentive for

work and contribution

“…income distribution survives as one of the most robust and important factors associated with growth duration.”

– IMF Economists Andrew Berg and Jonathan Ostry

Source: “Inequality and Unsustainable Growth: Two Sides of the Same Coin?” April 2011, International Monetary Fund

Economic Mobility = Fewer

Recessions, Longer Recovery Periods

Do you believe the U.S. is providing for sufficient

economic mobility?

“…the United States has both the lowest mobility and highest

inequality among all* wealthy democratic countries.”

– MIT Economist David Autor*study of 13 OECD member countries for which consistent data were available

Source: “Skills, Education and the Rise of Earnings Inequality Among the ‘Other 99 Percent’” May 2014, Science

Intergenerational mobility disappearing

United States

1 in 20 Americans age 25 to 34 surpassed the educational level of their parents.

20 Richest Nations

Average is 1 in 4.

Source: “Closing Education Gap Will Lift Economy, a Study Finds,” Feb 2015, The New York Times

Source: The Social Mobility Index – socialmobilityindex.org

Every year, 90% of the U.S. population “transfers” $2 trillion to the top 10%.

That exceeds the trade deficit by 4x.

Source: "Capital in the 21st Century," Thomas Piketty - (trade deficit 2014 = $500 billion)

Our Biggest Economic Threat Is at

Home, Not Abroad

“The principal force for convergence [reduction of inequality] –the diffusion of knowledge –…depends in large part on educational policies, access to training and to the acquisition of appropriate skills, and associated institutions.”

– Economist Thomas Piketty

Do you believe higher education is driving economic mobility?

“If the ladder of educational opportunity rises high at the doors of some youth and scarcely rises at the doors of others, while at the same time formal education is made a prerequisite to occupational and social advance, then…

…education may become the means, not of eliminating race and class distinctions, but of deepening and solidifying them.”

- President Harry S. Truman (1947)

Discounted Tuition Still Out of Reach

College tuition (net price) represents 84% of avg. family HHI for lowest-income students

Source: “Indicators of Higher Eduation Equity in the United States,” 2015, The Pell Institute and Penn Ahead

“Rich kids graduate;

poor and working-class kids don’t.”

(~Paul Tough, NYT) Students from high-income families 8x more likely to obtain a bachelors’ degree by age 24 than those from low-income families

Gap is widening…

Source: “Indicators of Higher Eduation Equity in the United States,” 2015, The Pell Institute and Penn Ahead; “Who Gets to Graduate?” May 2014, The New York Times

Too many schools landing in the high

debt, low ROI quadrant

Just the Numbers

• Median net ROI (with aid)

adjusted for borrowing ¼ of

college cost = 7.9%

• Average return on university

endowment = 8.2%

Source: “College or the Stock Market?” March 2015,

PayScale College ROI Report

QualitativeFactors

Quantitative Factors

Social

Factors

Value of

Education

Of Course, What You Gain Is More Than

Increased Earning Potential

• Increased Knowledge• Critical Thinking Skills• Lifelong friendships• Strong Career Network• More Career Opportunities

• Increased Civic Engagement• Better Health• Rely Less on Gov’t Assistance• Less Likely to be Incarcerated• Higher Tax Revenue• Social Mobility

• Additional Income• Lower Unemployment

From a financial standpoint, college is a

good investment

if you graduate and if you don’t over-

extend yourself on student loans.

Those are big ifs for low-income students.

Until 2009, young adults with student loan debt were more likely to:

• own homes

• have car loans

• have better credit scores

But now the opposite is true.

Source: “The Hefty Yoke of Student Loan Debt,” Feb 2014, The New York Times

Economic Opportunity Not Materializing

SOLUTION BRAINSTORMWhat will make a

difference for low-income students?

FOR DISCUSSION: Possible Solutions

• Eliminate tax deductibility of contributions to higher edunless the donation goes to admitting, advancing, and funding students from below median income families

• Reform the Pell Grant system so that funds go only to families below median income

• Tax inheritance to fund schooling grants to families below the median income

• Vary tuition charges by major

• Set quotas for admission based upon family income