The Link Between Student Loans And Social Mobility

The Link Between Student Loans And Social Mobility – Michael Greenstone, Adam Looney, Jeremy Patashnik, and Muxin Yu, The Hamilton Project MGALJPaMYTHP Michael Greenstone, Adam Looney, Jeremy Patashnik, and Muxin Yu, The Hamilton Project

This Project Hamilton policy memo provides thirteen economic facts about growing income inequality and its relationship to social mobility in America; on the growing disparities in educational opportunities and outcomes for high and low income students; and about the important role education can play in enhancing the ability of low-income Americans to move up the income ladder.

The Link Between Student Loans And Social Mobility

It is known that the income gap in the United States has increased substantially over the last few decades, a trend that is especially true for families with children. In fact, according to Census Bureau data, more than a third of children today are being raised in families with lower incomes than comparable children thirty-five years ago. The continued erosion of income among such a wide cohort of children is unprecedented in recent American history. Over the same period, children living in the top 5 percent of the family income distribution have seen their family income double.

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What is less known, however, is that mounting evidence suggests that the forces behind these differing experiences threaten the upward mobility of young Americans, and that income inequality for one generation can mean inequality of opportunity for the next. It is too early to say for sure whether the increase in income inequality over the past few decades has led to a decrease in the social mobility of the poor and those in the middle class—the first generation of Americans to grow up under this inequality, on average, in high school — but the initial signs are unsettling.

Investment in education and skills, which are factors increasingly determining outcomes in the labor market, is increasingly stratified according to family income. As income inequality increases, wealthier parents are able to invest more in their children’s education and enrichment, increasing the already sizeable investment differential from those on the other end of the income distribution. This disparity has real and measurable consequences for today’s generation of American children. Although cognitive ability tests showed little difference between children of high- and low-income parents in their first years of life, large and persistent differences began to emerge before kindergarten. Among older children, evidence suggests that the gap between high- and low-income primary and secondary students has increased by nearly 40 percent over the last thirty years.

These differences persist and extend into young adulthood and beyond. Just as the gap in K-12 test scores between high and low income students is growing, the difference in college graduation rates between the rich and the poor is also growing. Although college graduation rates among the poorest households increased by about 4 percentage points between those born in the early 1960s and those born in the early 1980s, over the same period, graduation rates increased by nearly 20 percentage points for the richest households. .

Given how important education and, in particular, university degrees are in the labor market, this trend raises concerns that past-generation inequalities will pass on to the next and opportunities for upward social mobility will diminish. The emphasis American society places on upward mobility makes this a cause for concern. In addition, low levels of social mobility can eventually shift public support towards policies to address these inequalities, instead of towards policies intended to promote economic growth.

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While the urgency of finding solutions to this challenge requires a rethink of social and economic policies, we believe that any successful approach will require enhancing America’s skills and human capital. Decades of research demonstrates that policies that improve quality and expand access to early childhood, K–12, and tertiary education can be effective in ameliorating stark disparities in economic opportunity across households.

Indeed, making it easier and more affordable for low-income students to attend college has long been a vehicle for upward mobility. Over the past fifty years, policies that have increased access to higher education, from the GI bill to student aid, have not only helped lift thousands of Americans into the middle class and beyond, but have boosted the productivity, innovation, and resources of the American economy. .

Fortunately, researchers are making rapid progress identifying new approaches that complement or enhance long-running federal aid programs to increase college attendance and completion among low-income students. These new interventions, which include secondary school and college mentoring, targeted information interventions, and behavioral approaches to encourage students to achieve better outcomes, could form the basis of important new policies aimed at getting more students into college.

The basic principle of The Hamilton Project’s economic strategy is that long-term prosperity is best achieved by encouraging economic growth and broad participation in that growth. This principle is especially relevant in the context of social mobility, where broad participation in growth can contribute to further growth by giving families the ability to invest in their children and their communities, the optimism that their hard work and efforts will bring success to them and their children. their children, and openness to innovation and change that lead to new sources of economic growth.

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In this spirit, we offer “Thirteen Economic Facts about Social Mobility and the Role of Education.” In chapter 1, we examine the markedly different changes in income between American families at opposite ends of the income distribution over the past thirty-five years and the seemingly dominant role that a child’s family income plays in determining his or her future economic output. In chapter 2, we provide evidence of the growing gap in the United States in educational opportunity and outcomes based on family income. In chapter 3, we explored education’s enormous potential to increase upward mobility for all Americans, focusing specifically on what we know about how to increase college attendance and completion for low-income students.

Although family income has increased by an average of 37 percent between 1975 and 2011, it has declined for the poorest third of children.

Figure 1 illustrates the differences in children’s wealth based on their family income, as measured by the US Census Bureau. Children in the top 5 percent of families have seen a sizeable increase in their family income and resources since 1975. Children in the top 5 percent of families, for example, have seen their family income double. But such gains are more modest for children in the midst of the distribution, and children living in low-income families experience an immediate drop in income. In fact, in 2011, the bottom 35 percent of children lived in families with lower reported incomes than comparable children thirty-six years earlier.

Due to the widening gap in their parents’ incomes and changes in family structure—particularly the increase in single-parent families—family resources available to less well-off children lag behind those available to their higher-income counterparts.

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Many worry that increasing income inequality will lead to reduced social mobility. Figure 2, recently created “The Great Gatsby Curve,” takes data from several countries at one point in time to show the relationship between inequality and immobility. Inequality is measured using the Gini coefficient, a common metric economists use to determine how much of a country’s income is concentrated among the rich; Social mobility is measured using intergenerational income elasticity, an indicator of how much a child’s future income depends on that of their parents.

Although, as the figure shows, higher levels of inequality are positively correlated with reduced social mobility, we do not know whether inequality causes decreased mobility. Furthermore, there are many important factors that differ between countries that might explain this relationship. Nonetheless, Figure 2 represents a provocative observation with potentially important policy consequences.

What Figure 2 makes clear is that, while most people think of the United States as a land of opportunity—where hard workers of all backgrounds can prosper—the reality is much more encouraging. In fact, both in terms of income inequality and social mobility, the United States is in the middle when compared to other countries, most of which are democracies with market economies.

While social mobility and economic opportunity are important aspects of the American ethos, data suggests they are more myth than reality. In fact, a child’s family income plays a dominant role in determining his or her future income, and those who start out poor tend to remain poor.

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Figure 3 shows the likelihood that a child’s future income will place him in the lowest quintile (i.e., bottom 20 percent of the income distribution, shown by the green bar) or highest quintile (i.e., top 20 percent of the distribution, purple line) depending on where his parents are. in the distribution (from left to right in the figure, lowest, middle, and highest quintile). In a fully mobile society, all children would be equally likely to end up in any part of the income distribution; in this case, all

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