Introduction

Student debt is the third-largest category of consumer debt in the United States and currently stands at approximately $1.6 trillion. In recent years, the increasing magnitude of student debt has coincided with increased interest in student debt cancellation policies and subsequent debate over the burden of student debt across socioeconomic groups. In this Economic Commentary, we use the two most recent waves of the Survey of Consumer Finances (SCF) to explore changes from 2019 to 2022 in both the aggregate level and distribution of student debt across income and net worth for US families.

The SCF is a triennial survey conducted by the Federal Reserve Board designed to provide an overview of the balance sheets of a representative sample of US families. Conducted in its current form since 1989, the SCF collects information on family income, net worth, balance sheet components (including student loans), credit use, and other financial outcomes.

Before turning to our findings, we first recall three observations from Aladangady et al. (2023), who provide a broad overview of changes in family finances between the 2019 and 2022 waves of the SCF. First, between 2019 and 2022, median net worth grew by 37 percent in real terms, an increase that was more than twice as high as any past increase across consecutive waves of the SCF and much higher than the corresponding 3 percent growth in median income over the same period. Second, between 2019 and 2022, median income rose by less than mean income, suggesting an increase in income inequality, while the reverse was true for net worth, suggesting a decrease in net worth inequality. Third, between 2019 and 2022, the percentage of families with any student debt was unchanged at approximately 22 percent, and the median and mean amounts of debt among families with student debt remained at approximately $25,000 and $47,000, respectively.

These findings of Aladangady et al. (2023) illustrate that although the percentage of families with student debt and the average amount of debt per family were unchanged between 2019 and 2022, the change in the distributions of income and net worth was more subtle and warrants further analysis. In this Economic Commentary, we therefore extend the analysis of Aladangady et al. (2023) by exploring changes in the joint distribution of student debt, income, and net worth. We find that between 2019 and 2022, aggregate student debt grew by less than both aggregate income and net worth and that there was a shift in the distribution of student debt to the upper quintiles of both income and net worth. Further, most of this change was driven by changes in the amount of student debt held by student debtors in each quintile rather than by changes in the distribution of student debtors across quintiles.

Although SCF data do not permit us to ascribe causal effects to policy responses (as we are only looking at cross-sectional data three years apart), our analysis and focus are partly motivated by the COVID-19 pandemic and subsequent policy responses related to student debt. Indeed, there were several significant national policy responses to the pandemic. Most notably for our purposes, the federal government enacted a payment pause for most federal student loans from March 2020 through August 31, 2023.

During this time, certain kinds of student debt owed to the federal government were automatically considered to be in forbearance. For such loans, no payment was due for the duration of the pause (although borrowers could choose to continue to repay), and interest on these loans did not accrue. In present value terms, then, this payment pause therefore represented a net transfer to holders of student debt as interest on these loans was not retroactively applied for the duration of the pause. Interest began accruing on these loans on September 1, 2023, and student debt payments resumed in October 2023, and so the payment pause was in effect during the period in which the 2022 SCF was conducted.

Analysis

Our analysis consists of three distinct parts. First, we document changes in the aggregate amount of student debt, income, and net worth recorded in the SCF and provide summary statistics for income and net worth for families with student debt (“student debtors”) and for the whole population. Second, we examine how the average amount of student debt varies across quintiles of income and net worth. Third, we explore the extent to which these changes in averages by quintile represent changes in the incidence of student debt; we do this by computing analogous figures for the population of student debtors. Note that in this Economic Commentary we record all figures in 2022 dollars.

Aggregate figures and summary statistics

In the 2019 SCF, approximately 21.4 percent of families recorded any student debt, and the aggregate amount of this debt was $1.29 trillion. For the 2022 SCF, the corresponding figures were approximately 21.7 percent and $1.34 trillion, respectively. Although the aggregate amount of student debt grew slightly, as did the percentage of households with student debt, as a fraction of aggregate income recorded in the SCF, aggregate student debt fell from approximately 8.15 percent to 7.21 percent. Similarly, aggregate student debt fell from approximately 1.16 percent to 0.96 percent as a fraction of aggregate net worth as recorded in the SCF.

Before turning to analysis of distributions, we first study how families with student debt (student debtors) differ from the population as a whole. Of the different notions of financial well-being recorded in the SCF, we focus on income and net worth. Table 1 records the median and mean income and net worth for the whole population and for families with student debt.

Floods tend to increase out-migration, which, in turn, impacts the labor force

Research finds that natural disasters such as floods increase the overall number of migrants who move both locally and long-distance from the impacted area, which, in turn, impacts the local labor force (Boustan et al., 2020; Roth Tran and Wilson, 2023). One way to examine this is by using the USPS Vacancy Data. Released quarterly, this dataset provides information on the number of vacant residential addresses in a census tract. Trends in these data seem to indicate possible out-migration or, at the very least, an increase in vacant residential addresses. Focusing on the four hardest hit counties of Breathitt, Knott, Letcher, and Perry shows that residential vacancies increased by 19 percent from Q3:2022 (when the flood occurred) to Q4:2022. This is in addition to an average population decline of 600 people per year from its peak in 1984. Fewer residents mean fewer people available to fill jobs.

There is also anecdotal evidence of out-migration. According to Bridget Back, deputy director of the Eastern Kentucky Concentrated Employment Program, Inc. (EKCEP), one local school system has eliminated some positions due to a decline in school enrollment. McReynolds fears that “the longer people stay away, the less likely they are to come back.” However, out-migration’s impact remains to be seen, as recent research finds that those who moved tended to move to areas with a lower flood risk but also tended to stay within a 20-minute drive of their original homes (Elliott and Wang, 2023).

The pre-existing weakness of local labor markets is likely to impact housing recovery

Leading up to the July 2022 flood, the labor market in the 13 counties was not healthy. Total employment had dropped by 17 percent (15,812 jobs) from 2006 (its peak) to 2022, even after taking into account a 5.5 percent gain from 2020 to 2022. This sustained decline was driven in large part by a loss of 9,544 jobs (–77 percent) in the natural resource and mining sector, which was primarily coal mining, over the same period. This loss of jobs in turn leads to out-migration and unemployment rates that average higher than the national rate.

With that in mind, when the July 2022 flood occurred, unemployment filings jumped by 246 percent in August 2022 for the four most flood-impacted counties (Breathitt, Knott, Letcher, and Perry) compared to a 35 percent increase in the other nine counties. In addition, the 13 counties suffer from a shortage of skilled trades workers, such as carpenters, electricians, and plumbers, which has led to a backlog of people waiting to get their homes repaired or replaced. The sheer magnitude of the event has overwhelmed local companies, and the shortage of available housing and rental accommodations has hindered many outside companies from being able to stay long term. To better understand this shortage, it is helpful to examine location quotients, which are a common way to measure industry specialization by comparing the share of an industry in one region against the share of the same industry in a larger geographic area, usually the United States. A number greater than 1.0 indicates industry specialization. Going back to 1990, the highest location quotient for the construction sector was 0.75 (or 4.7 percent of total private employment) in 2001. Since then, the location quotient has declined to 0.45 (or 2.7 percent of total private employment) in 2022; that translates to 1,759 fewer jobs. Not only is the 13 counties’ share lower than the national average of 6 percent in 2022, but it is lower than the average rural county’s share, which has closely tracked the national average going back to 2009. One remedy, instituted by EKCEP in early 2023, was to fund wages up to 12 months for individuals participating in cleanup, humanitarian, and reconstruction efforts. As of July 2023, more than 200 people have benefited from the effort.

Recovery and preparedness

Rebuilding and repairing homes take time and resources

Rebuilding takes time, and, according to McReynolds regarding how long the recovery will take, “The recovery experts that came in were saying five years minimum.” McReynolds’ organization, the Housing Development Alliance, is well on its way to its goal of building 20 homes in 2023, but according to Back, rebuilding is made more difficult because the mountainous terrain limits the number of buildable pieces of land and adds to the cost. Following the flood, families were housed in the few available hotels, FEMA travel trailers, nearby state parks, or with family or friends. Some have cleaned up small sections of their homes and have chosen to live there until the rest of the home is repaired, which, according to Davis, is “dangerous as a cocked cannon,” given the potential health dangers of living in a home with mold and mildew. Others, according to McReynolds, “are buying sheds and using them as tiny homes.”

Depending on variables such as the damage done and the type of structure, households without flood insurance could be awarded up to $37,900 from FEMA to rebuild. Given inflation’s impact on prices and the shortages in building supplies and labor, FEMA’s funds may fall short of what is needed to repair homes. “That’s not enough to do anything if you have to rebuild your house,” observed McReynolds. Additionally, he points out the disconnect between the value of the damage and the cost of the repair: “Somebody may have been a homeowner, but the home they owned was a 1982 single-wide trailer. Well, what’s the value of a 1982 single-wide trailer? Not a lot. So, from a value standpoint, they may have only lost $5,000 or $10,000, but how are you going to house them? A replacement home is going to cost $150,000.” According to Davis, “A lot of people are trying to figure out where to rebuild, how to rebuild, but I also see people rebuilding in the same place because that’s all the capacity they have. They do it in hopes that it’s another 50 years before the next flood.”

For those who rent, the situation can be even more dire. According to Back, “Many renters lost their unit because it was damaged and the owner either decided that they were not going to repair the rental property, or it just took a backseat to other priorities they had, such as their own home.”

Researchers find that rural areas have both challenges and advantages related to flood recovery, but in the end, it is rarely a return to a pre-disaster state.

Recovery is a complex process and rural areas are more likely to face challenges such as a lack of zoning and building code enforcement alongside a limited or declining tax base. This can make recovery more difficult and constrain a community’s ability to invest in natural disaster mitigation and preparedness strategies (Jerolleman, 2020). While recovery rarely means a return to pre-disaster conditions, there are advantages that rural areas can count on to get them beyond a constant cycle of recovery and preparedness. Rural government structures tend to be less complex, giving them more flexibility to make decisions, but sometimes these advantages can be eliminated by a lack of cash reserves and staff capacity (Jerolleman, 2020). Rural areas also tend to have stronger social bonds, a greater sense of self-reliance, and a defined sense of community, which creates a collective action that aids in disaster recovery (Jerolleman, 2020). Communities that experience repeated flooding learn from each event to improve their response to and preparedness for the next one. For example, over time, these 13 counties developed two key pieces for flood recovery: a strong network of housing nonprofits and a local community foundation, the Foundation for Appalachian Kentucky, with the capacity to collect and redistribute money. In 2022, the foundation distributed $7.5 million in grants to over 7,650 households.

I thank Professor Marc Remer for inviting me to speak today as part of Swarthmore College’s lecture series. I had the pleasure of serving as an outside honors examiner in economics at Swarthmore about 20 years ago. I was really impressed with the rigor of the program and the knowledge and engagement of the students I met. So in thinking about a topic for today’s talk, I have chosen to discuss a challenge that will require multi-faceted solutions from the great minds of those being trained at Swarthmore, as well as other individuals, communities, governments, businesses, and institutions. That challenge is the cycle of disparities in economic opportunities that afflict our economy and limit economic inclusion.

The pandemic has shined a bright light on differences in economic outcomes, but these differences existed long before we had heard of COVID-19. Many stem from the fact that the U.S. economy does not offer the same economic opportunities to all. There are racial disparities in educational attainment, labor market outcomes, and access to credit. People born into areas of concentrated poverty or predominantly minority areas are disadvantaged over their entire lifetimes, and so are their children. These disparities are interrelated, reinforce one another, and have been propagated across generations. In today’s lecture, I will begin by explaining why I think it is important for Fed policymakers to understand the disparities in our economy and then I will walk through a set of figures that clearly illustrate these disparities to give you a sense of the magnitudes. Before continuing, let me mention that, as always, the views I will present are my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee.

Understanding Economic Disparities Is Important for Assessing the Health of the Economy

I believe that economic opportunity and inclusion are important to the Federal Reserve System’s mission of promoting a healthy economy and a stable financial system in the United States on behalf of the public. Congress has given the Fed several responsibilities, including setting monetary policy to achieve maximum employment and price stability, fostering financial stability and a safe and efficient payments system, regulating and supervising parts of the financial system, and promoting consumer protection and community development. I believe that the Fed should focus on the responsibilities that Congress has given us. Staying within the boundaries of our assigned responsibilities respects the fact that Fed officials are not elected officials, unlike members of Congress or the executive branch. Staying focused on our responsibilities also helps to maintain the Fed’s independence to make monetary policy decisions in pursuit of our statutory goals, insulated from short-term political pressures. It is important to preserve this independence because a body of research has shown that when central banks formulate monetary policy free from political considerations and are held accountable for their decisions, better economic outcomes result. The Fed is held accountable when it regularly communicates the rationale for its decisions in testimony before Congress, and in policy statements, meeting minutes, reports, and speeches.

To be able to meet our responsibilities, it is important for the Fed to understand the economic environment in which we are setting our monetary, regulatory, and payments policy. Understanding differences across demographic groups, industries, and areas of the country helps us to assess the strength of the economy, determine what policy is appropriate, identify the consequences of our policy actions, and assess whether the policy actions are achieving their goals. In some cases, the connection between our analysis and our responsibilities is obvious. For example, the Fed is responsible for enforcing the Community Reinvestment Act, which requires banks to serve their entire community and ensure equitable access to credit, in particular for underserved low- and moderate-income areas and individuals. It would be impossible to assess whether a depository institution was complying with the Community Reinvestment Act without understanding the credit conditions that exist in the low- and moderate-income areas it serves. Similarly, the Fed’s broader role in identifying effective community development policies and access to credit depends on understanding the challenges faced by people in these neighborhoods.

In other cases, the connection between our analysis and our policy responsibilities can be more subtle. While monetary policy is too blunt a tool to be used to close existing gaps in economic outcomes and opportunities across different demographic groups, it does have a positive role to play. By promoting maximum employment and price stability, monetary policy encourages longer expansions, which makes the economy stronger for all, including those individuals and communities that are least able to withstand economic downturns. Even though the effects of monetary policy are indirect, analyzing the size and source of gaps gives us insight into the distributional effects of our policy actions. Understanding the gaps in labor market conditions is directly relevant to our assessment of labor market slack and how close we are to reaching maximum employment, one of our statutory goals, which we view in a broad and inclusive way. Assessing economic opportunity gaps also informs our outlook for the economy over the longer run. It helps us evaluate the overall strength of the aggregate economy and its ability to live up to its full potential. Persistent gaps in economic opportunity can lead to a lower longer-run growth rate for the economy by limiting labor force participation and educational attainment levels, which affect productivity growth. Longer-run economic growth is a determinant of the long-run equilibrium interest rate, an important factor to consider in setting monetary policy. So knowledge about the forces affecting people’s ability to fully participate in the labor market, to gain the skills necessary to create new ideas and technologies, and to use those technologies effectively gives Fed policymakers insights into structural aspects of the economy that are relevant to setting appropriate monetary policy, even though our policy actions cannot directly affect these structural factors.

The Cleveland Fed has established a Program on Economic Inclusion to conduct research and provide data on economic disparities, their causes, implications, and solutions. I invite you to explore this work on our website. Because understanding disparities in economic outcomes and opportunities is important for assessing the economy, I would like to spend the rest of my time today first focusing on some of the disparities that grew during the pandemic and then turning to long-standing disparities.

Disparities in the Economic Effects of the Pandemic

While the economy is still far from our policy goals of maximum employment and price stability, progress is being made and the economic outlook is brightening. Sizable support from fiscal and monetary policy, vaccination deployment, and the resiliency shown by households and businesses, all point to a pickup in activity in the second half of this year and for continued progress, albeit uneven progress, as some sectors recover faster than others.

It probably is not surprising that the recovery has been uneven across business sectors, geographic areas of the country, and demographic groups, because the effects of the pandemic have not been evenly distributed either. Negative effects have been borne by many of the most vulnerable in our economy: lower-income and minority workers and communities; those who do not have the opportunity to work from home; those who don’t have access to reliable telecommunications and internet services or to adequate healthcare; and the smallest of small businesses. A Fed survey released last September showed that during the early stage of the pandemic, between March and July of last year, a larger percentage of low-income workers, less-educated workers, and Black and Hispanic workers were laid off compared to higher-income, more educated, and white workers. , Other data show that from February to April of last year, the number of active small business owners dropped by 3.3 million, a record 22 percent decline. Compared to small firms overall, Black-owned businesses were twice as likely to close and Hispanic-owned businesses were one-and-a-half times as likely to close. These closures can have an outsized effect on low- and moderate-income communities, which were already disadvantaged before the pandemic.

As the economy has begun to recover, rehiring by employers has been considerably slower for low-wage workers than for high-wage workers. In these data, seen in the left panel of the figure, high-wage workers are those making above $29 per hour, which is the top quartile of the wage distribution, and low-wage workers are those making below $13 per hour, which is the bottom quartile of the wage distribution. Employment of high-wage workers is basically back to its pre-pandemic level, but employment of low-wage workers is still down almost 30 percent.

As seen in the right panel, among workers in the prime working ages of 25 to 54, the labor force participation rates of both men and women fell when the economy shut down last year, and the net decline for women has been larger than that for men throughout the pandemic. This partly reflects the larger share of women working in industries hit hardest by the pandemic and the fact that women bore more of the brunt of having to provide childcare for pre-school children or those being schooled remotely.

Disparities in the initial impact of the pandemic and in the recovery can also be seen in the unemployment rates of various demographic groups. All groups’ unemployment rates shot up last spring and have fallen since then, but, as of March of this year, there has been less progress for nonwhites and for those without a college education. Relative to their pre-pandemic levels, the unemployment rates of Blacks, Hispanics, and Asians remain higher than that of whites, and the unemployment rate of high school graduates without any college is higher than that of college graduates.

Some of these differences in labor market outcomes reflect differences in the distribution of the types of jobs across demographic groups. The drop in employment in leisure and hospitality was severe and the recovery in that sector has been slow, with the number of jobs down more than 30 percent compared to before the pandemic. In contrast, education and health services; trade, transportation, and utilities; and professional and business services saw smaller declines and have made up more ground over the recovery.

But even before COVID-19, there were already long-standing economic disparities that need to be examined to better understand the overall health of the U.S. economy.

Upward Mobility

All parents want to know that their children will be better off financially than they are. But upward mobility – the probability that a child will be better off economically than his or her parents – has fallen sharply in the U.S. since World War II. Research by Raj Chetty and his co-authors found that around 90 percent of children born in 1940 earned more at age 30 than their parents did. By the mid-1980s, only about 50 percent did. , Although not shown in the figure, the largest declines have been in the middle class.

Rising income inequality has contributed to this decline. Since the 1960s, the median level of income, adjusted for inflation, has risen over time, from about $48,000 in 1967 to about $69,000 in 2019. But those in the top 10 percent of the income distribution have enjoyed sharper gains than those in the bottom 10 percent. The U.S. has one of the lowest rates of intergenerational mobility among advanced economies and more pronounced income inequality.

Using disaggregated data, Chetty and his co-authors show that upward mobility depends not only on the family’s characteristics but also on neighborhood characteristics such as neighborhood income, racial integration, the quality of schools, and access to social services. On this map, areas of relatively high intergenerational mobility are shown in shades of blue-green. Children who grew up in these places earn higher average incomes in their mid-thirties than their parents did at the same age. Shades of red indicate areas of low intergenerational mobility: places where children have not progressed very far in terms of income relative to their parents. An important insight from the research is that even areas with fairly good economies in terms of stronger output growth and job growth, like some places in the South, have not necessarily produced high levels of upward mobility for the children growing up there. Strong economic factors certainly help, but they are not a panacea.

Here, I’m showing you the map for Philadelphia. (I have circled Swarthmore in pink.) If you were to drill down even further, you would see differences even within neighborhoods. In fact, research shows that moving a child from a low-mobility neighborhood to a high-mobility neighborhood can have profound effects on his or her future economic outcomes. ,

In addition to place, race also matters. Even among those whose parents were at the same income level and who grew up in the same neighborhood, there is a gap in earnings between Black males and white males.

And there are adverse dynamics as well. The research by Chetty and his co-authors shows that even controlling for where a child grows up, Blacks have a significantly lower chance of moving up in the income distribution than whites or Hispanics and a higher chance of moving down in the distribution. The left panel of bars in this chart shows the percentage of children born to low-income parents who become high income, by race – that is, what we have been calling upward mobility. The middle panel shows downward mobility – the percentage of children born to high-income parents who become low income. And the right panel shows the percentage of children born to high-income parents who remain high income. Strikingly, Blacks who have been born to high-income parents are almost as likely to move down to the lowest income quintile as to stay in the highest one.

Gaps in Income and Net Worth

According to the 2019 Federal Reserve Survey of Consumer Finances, median income for white households was about 1-3/4 times that of Black families and Hispanic families. These gaps are not a recent phenomenon: they have been around for decades. And because earnings gaps accumulate over time, they lead to much larger gaps in family net worth (financial and nonfinancial assets, like homes and autos, minus debt), often called the wealth gap. The median net worth of white families in 2019 was almost 8 times as high as that of Black families and about 5 times as high as that of Hispanic families.

Research by Cleveland Fed economists Aliprantis, Carroll, and Young found that the current gap in net worth between Blacks and whites can be explained much more by differences in earnings than by differences in bequests or in the returns to savings a family has earned. Their modeling also shows that if the wealth gap were eliminated today, but without addressing the earnings gap, then in 50 years the wealth gap would be back to about where it is today. This suggests that closing the earnings gap is the key to closing the wealth gap and that increasing access to high-quality education, which will expand labor market opportunities, could be one of the key drivers of a more inclusive economy.

Gaps in Education

Many factors play a role in these gaps in income and net worth. Black and white children tend to grow up in different neighborhoods, and this racial stratification leads to other risks, such as differences in access to healthcare and safe housing, which can affect access to quality education and longer-term economic outcomes.

One difference that was illuminated by the pandemic and that poses a risk to learning is lack of internet connectivity. Well before the coronavirus pandemic, access to the internet was an important avenue for education, as well as for healthcare and job access. Usage of broadband at home has been increasing over time for all groups, but it remains comparatively higher for whites, those with higher incomes, and those in urban and suburban areas. Data indicate that Blacks and Hispanics are less likely to have a computer or broadband at home than whites, and when they do have a computer, they are less likely to have broadband service at home. Lack of connectivity put Black, Hispanic, and lower-income families at a particular disadvantage over the last year when remote in-home learning became the norm.

In fact, as seen on the left-hand side of this figure, last spring, when schools were shut down because of the pandemic, students in low-income and middle-income areas completed significantly fewer math courses online than those in high-income areas. As seen on the right-hand side of this figure, this spring, students in middle-income areas have improved, but students in low-income areas are still struggling.

These differences could have lasting negative effects. The accumulation of human capital via education is an important path to economic inclusion and opportunity, resulting in better economic outcomes not only for individuals and their families, but also for the country at large by raising productivity growth. The median income for families with a college degree is about twice as high as that of a family with only a high school diploma. Similarly, median net worth is considerably higher for those with a college degree.

The U.S. labor force has become more educated over time, but educational attainment differs by race. In 2019, 41 percent of white families had a college degree compared to 26 percent of Black families and 16 percent of Hispanic families.

I probably don’t have to tell this audience that cost can be an important barrier to entering college, particularly for those coming from lower-income families. The average cost of tuition and fees at four-year institutions is now over $16,000 a year, and adjusted for inflation, it has more than doubled over the past three decades. According to the Fed’s survey on economic well-being, as of late 2019, over 40 percent of those who went to college had taken on debt for their education and about half of those people still owe money on this debt, making it harder to access credit for other purchases. ,

For those students who do find the financial means to enter college, the likelihood of completing a degree differs by type of institution and by race. The completion rates have remained particularly low at for-profit institutions for all racial groups. At both public and nonprofit private institutions, the graduation rates for whites, Hispanics, and Asians have all risen over time, but those of Blacks remain well below those of these other groups and have shown only a little progress over time. The reasons for these differentials are complex. Among other reasons, they partly reflect differential access to high-quality education at the pre-college level that prepares the students for success in college, and they partly reflect the fact that students from lower-income families have more financial responsibilities while attending college that take time away from their studies.

Gaps in Labor Markets and Credit Markets

Whatever the cause, the differences in educational attainment follow people as they enter the workforce. Unemployment rates among Blacks and Hispanics have been chronically above those of whites and Asians, and Blacks and Hispanics are more likely to lose their jobs during recessions. Some progress was made in closing those gaps over the long previous expansion, which is good news and points to the value of fostering long-lived expansions. Nonetheless, disparities remain.<

Worse and more volatile labor market outcomes make it harder for nonwhite households to build assets and achieve sound financial health, limiting their ability to fully participate in the economy. For those families that are able to get a mortgage, job insecurity makes the household less financially resilient and raises the risk that the household might fall behind on its mortgage or even default, putting the family’s longer-term financial health at risk. Housing continues to be an important way for families to build wealth. As shown by the dotted lines on the left-hand side of this figure, homeownership rates rose a lot last year, but part of those increases may reflect difficulties in collecting data remotely during the pandemic. As shown on the right-hand side of this figure, even with last year’s rise, the gap between the homeownership rate of whites and Blacks and between whites and Hispanics remain large. New York Fed analysis indicates that there are sizable racial gaps even after controlling for income and other factors related to creditworthiness. This indicates that systemic racial differences in access to credit have persisted well after enactment of fair housing and lending legislation in the 1970s meant to address the scourge of redlining and discrimination in credit markets.

As seen on the left-hand side of this figure, in terms of access to financial services, Blacks and Hispanics are less likely to have a bank account and more likely to rely on alternative financial services such as money orders and check cashing services than whites. Being unbanked or underbanked makes it harder for these families to build a credit history.

The use of bank financing by small businesses also varies significantly with the race of the owner, as seen on the right-hand side of this figure. According to the Fed’s Small Business Credit Survey, compared to small firms with white ownership, those with Black ownership were half as likely to have obtained financing from a bank in the five years before the pandemic, relying more on online lenders, which, according to survey respondents, provide less satisfactory service.

Moving Toward Economic Inclusion and a Stronger Economy

As I hope you find clear from this summary of some of the data, the disparities that exist in the economy are interrelated. Lower-income households have less access to high-quality education, which means less access to higher-paying jobs and job security, and less access to high-quality housing, which means less access to credit, which means less access to education, and around it goes. And for many people, being nonwhite puts them into this cycle of disparities with fewer opportunities to escape because of systemic racism.

Eliminating racial and economic disparities, which have lasted over generations, is no easy task. One place to start in breaking the cycle is for the country to take steps to increase access to high-quality education and to effective job-skills programs, especially for those who have not had these opportunities in the past. Access should also include the necessary support to help students successfully complete these programs. Workforce development is one of the key focus areas of the Federal Reserve’s community development function and is an important component of a healthy labor market.

Education can be transformational, changing the paths of individuals, future generations, and communities. Improving education levels and ensuring that people are well prepared to enter and remain productive in the modern workforce would lead to higher levels of labor force participation and higher productivity growth, key factors driving higher long-run economic growth and higher standards of living. Investments to increase access to education present a good value proposition to the country – the promise of a stronger economy that works for us all.

Elizabeth VanMetre

Position: Reporter

Covers: Don’t Waste Your Money Team and consumer news

Email: Elizabeth.vanmetre@wews.com

Twitter: @ElizabethRoseVM

Facebook: ElizabethVanMetreTV

Birthplace: Durham, North Carolina

Education: Columbia University

Previous Work Experience: Weekend Morning Anchor & Unsolved Cold Case Series Reporter at KY3 News Springfield, Mo, Morning Anchor at KCWY Casper WY, Entertainment reporter at Entertainment Tonight

Joined News 5: February 2024

Most Memorable Stories: Following the Dr. John Forsyth Case, stories I covered in the Middle East

Awards/Honors:

Missouri Broadcasting Anchor of the Year

Emmy Nominated

News Philosophy: Just give the facts and let viewers decide

Role Model: John Clark- News Anchor at WRAL. Watching him growing up made me want to work in the news.

Favorite Music: Taylor Swift

Favorite Movie: Cruel Intentions

Favorite Program: Real Housewives of Salt Lake City & Beverly Hills

Favorite Book: The Housemaid

Favorite Food: Dumplings

Family: Husband- Brady & Son- Kieran

Pet: Jack the Golden Retriever

Hobbies & Interests: Pilates and reading.

You’re most likely to see me around town at a new restaurant! I’m a culture vulture who wants to see and try all the new things.

What I like best about Northeast Ohio: The people!

On the weekends I love to: Go find fun things to do with my kid.

In these jobs, there are two forces compelling individuals to change: the “push” of a problem causing dissatisfaction and the “pull” of a new solution. This push and pull raises questions that are practical, emotional, personal, and social. For example: will I get a raise with a degree or new credential? Am I better off staying with what I’m doing rather than doing something different? My friends are going to college, so should I? How can I challenge myself to learn more? In today’s world, individuals can experience several of these jobs—and perhaps all of them–multiple times.

In addition to traditional two- or four-year institutions, other educational options that respond to these “jobs to be done” include apprenticeships and internships; career and technical education; job placement and in-house training; and boot camps for acquiring discrete knowledge or skills. There are also new approaches to paying for programs, like income-share agreements that allow students to pay for education based on income. Understanding what motivates individuals and helping them be clear about their reasons for seeking more education—the job to be done—can help them make better choices and avoid unintended consequences.

Other Paths to Good Jobs

Of course, finding good-paying jobs doesn’t necessarily require a bachelor’s degree. While that degree has become a de facto proxy for employability, only around one-third of American adults possess a four-year degree. The impressive value attached to the college degree leads individuals to think that nothing less can yield as good—or almost as good—an outcome. In fact, there are “opportunity rich” employment options for those without a four-year degree that move individuals into the middle class and careers worth having.

According to Georgetown University’s Center on Education and the Workforce, there are about 65 million existing “good jobs.” The center defines a good job as paying at least $35,000 annually for those aged 25 to 44 and $45,000 for those in the 45 to 64 range, at a time when 2016 American median earnings were $65,000. Some people earning six figures may not view such jobs as “good,” but a great many people manage to get by, and even thrive, with them.

The first non-four-year pathway is the high school pathway, which includes those with a high school diploma or less and leads to 20 percent of good jobs. Workers who follow that path often advance to roles as managers and supervisors in fields like construction, manufacturing, food services and office support. Second, the middle skills pathway—aimed at 24 percent of 2016’s good jobs—embraces those with more than a high school diploma but less than a bachelor’s degree—e.g., holders of associate degrees or certificates. These “certified value” employees have jobs that span skilled services and a host of blue-collar fields, including healthcare technicians, surveying and mapping technicians, firefighters, and law enforcement.

The bachelor’s degree pathway assumes at least a four-year degree and points toward 56 percent of today’s good jobs. It includes professional and technical jobs and “frontier jobs” deploying new technologies like robot integration and search engine optimization. Not until 2008 did these workers hold more good jobs than those without a degree, marking the ascent of the “college economy.” From 1991 to 2016, bachelor’s degree pathway jobs doubled, from 18 to 36 million. Middle skills jobs grew by 3 million. While high school jobs decreased by about 2 million, employment opportunities for those following the high school pathway have remained stable, as the number of high school pathway workers moving to other pathways was greater than the number of jobs lost in the high school pathway.

Analysts at the Federal Reserve Bank of Cleveland examined labor market differences for those with and without bachelor’s degrees in 121 metro areas with 103.5 million employed workers, making up73 percent of total 2017 U.S. employment). Almost 22 percent of these were “opportunity jobs,” or positions filled by people without degrees who were paid at least the national annual median wage of nearly $37,000 (adjusted for regional differences).

These analysts also acquired data from Burning Glass Technologies, which tracks labor market data and talent, to understand the level of education that employers seek when filling open positions. Among the largest 25 livelihoods, at least nine—led by several occupations in health care and the skilled trades—are fully accessible to those without a four-year degree. For the other 16 occupations, there was no employer consensus regarding the education credentials needed for those jobs.

This lack of consensus may be due largely to labor market issues rather than the work’s true educational requirements. An employer’s requirement of a college degree may itself be a form of credential inflation, “an unnecessary barrier for [some] workers in some places relative to others,” according to the Cleveland Fed analysis. A more skills-based—or supply side—approach to hiring would make far more sense, although it’s understood that some employers treat education credentials as “signals” of character traits that they value (e.g., persistence), even if there’s no direct relationship between what’s actually learned and what the job actually demands. A key challenge for both employers and job seekers is pairing individuals without bachelor’s degrees to good jobs. This matching process requires schools, colleges, and placement organizations to build strong employer relationships so that potential workers get the right first job.

An example of this approach at the state level is the Delaware Pathways program, initiated during the 2014–15 school year by Governor Jack Markell as a statewide initiative to provide college and career preparation for youth. Students can take college classes at no cost to families, work as interns in real jobs, and earn work credentials (see “Summer School is the New Summer Job,” features, Summer 2020). Middle school students learn about career options and then, as high school sophomores or juniors, take courses related to careers. In the summer before senior year, students start a 240-hour paid internship that goes through the senior year. The program creates pathways from school to careers aligned with state and regional economies, especially middle-skills jobs. In Delaware, these jobs offer an average salary of nearly $45,000 a year, compared with low-skills jobs that offer an average salary of around $26,000 a year.

The program involves a diverse partnership, including K–12 education, businesses, postsecondary education, philanthropy and community agencies and organizations. For example, Delaware Technical Community College is the lead agency that arranges work-based experiences. The United Way coordinates support service for low-income students. Boys and Girls Clubs and libraries provide after-school service for youth. The initiative is governed by a steering committee composed of representatives from the public, private and nonprofit sectors, with financial support coming from public and private dollars, including philanthropy. Currently there are 26 pathways programs in fields like advanced manufacturing, computer science, digital marketing and communications, agricultural science, and health care. Over 16,000 students are enrolled. In some pathways, students take career-related courses at institutions of higher education and earn college credit which that be applied to an associate degree or certificate. In others, students take courses at their high school. Teachers for the courses have extensive industry experience.

Part Three: New Approaches

The Supply Side: Delivering an Education

The onus for accelerating upward mobility and making postsecondary education relevant to careers should not fall exclusively on colleges and universities. Innovations undertaken by K–12 and postsecondary education and other community organizations and enterprises are creating new pathways for young people that engage them in novel ways and lead them to in-demand twenty-first–century jobs and careers. These include apprenticeships, internships, and career and technical education; dual enrollment in high school and postsecondary institutions, including job placement and training; career academies; boot camps that focus on acquiring discreet knowledge or skills; staffing, placement and other support services; and income-share agreements, allowing students to repay tuition after acquiring a good-paying job.

This engagement allows young people, with the assistance of classroom educators and workforce mentors, to make a connection between school and work, education and career. It also prepares them to make a better-informed decision about their next step after high school. A better-informed decision on the front end will likely lead to greater satisfaction on the back end.

Here are five examples from different sectors and domains:

1. K–12 School District and Charter School Partnerships: Da Vinci Schools, a Los Angeles-area charter school created in 2009 by the Wiseburn School District, is a partnership between the district and charter school. It serves 2,100 students from 108 zip codes in grades K–16 and includes a K–8 home school-hybrid model, four high schools, a postsecondary college and career program, and a training institute. Ninety-eight percent of its students graduate from high school and meet the admissions requirements for the University of California system.

Da Vinci has more than 100 business and nonprofit partners that offer internships, mentorships, workshops, boot camps, project consultancies, and other student engagement programs. Student services to partners include website and social media design, graphic design, and youth marketing focus groups.

The Da Vinci Extension program integrates high school, college, careers, and student services like mental health and counseling. Students, some of whom are already working, have two pathways to further education, including associate’s or bachelor’s degrees via classroom and online instruction. One pathway is through UCLA Extension and El Camino College, at no cost to students. The other pathway is College for America, affiliated with Southern New Hampshire University. Program costs can be subsidized by Pell Grants and local funding. At both programs, students access tutoring, advising, and teacher support through Da Vinci.

2. National Catholic School Networks: Cristo Rey, founded in 1996, is a network of 37 Catholic schools enrolling 12,000 students in 24 states. On average, 40 percent of students in the network are not Catholic, and 98 percent are minority youth, with an average family income for four of $37,000. The network integrates four years of academics with work experience through its Corporate Work Study Program, a separate nonprofit that places high school students five days a month in an entry-level, professional job chosen from among over 3,400 corporate partners.

At full enrollment, a Cristo Rey school’s financial model reflects 60 percent of funds earned through the corporate work-study program, 30 percent through fundraising, and 10 percent through family contributions of, on average, $1,000 a year. Families access state school voucher and tax credit programs where available.

3. Public-Private Partnerships: In Georgia, Junior Achievement, Fulton County Schools, and the Atlanta business community launched a public-private partnership in 2015 to create a new school curriculum model within a traditional district high school. 3-D Education (3DE) says it “re-engineers high school education to be more relevant, experiential, and…connected to the…real world in order to more fully prepare today’s students for the demands of tomorrow’s economy.” Today, 3DE has expanded to six schools in four public school districts.

Examples of the workforce pathways it offers students include business and technology; entrepreneurship; marketing and management; and financial services. 3DE’s project-based learning design includes a six-week case study beginning in 11th grade that involves students in off-campus experiences with industries and professions, including work-based coaches. Not only do students excel academically , they feel prepared for what lies ahead: 98 percent of 3DE students feel excited about their futures.

4. Citywide Partnerships: In New Orleans, the education, business, and civic partnership YouthForce New Orleans has prepared students for high-wage and high-demand career pathways since 2015. YouthForce New Orleans works with open enrollment charter high schools, offering career exposure and work experiences, soft-skills training, coaching for students, and paid student internships for seniors. The internships consist of 60 hours of professionalism training, followed by 90 hours of work placement in a career pathway where opportunities include biology and health sciences, digital media and IT, and skilled crafts like architecture and water management.

YouthForce New Orleans has other programs, including an annual Career Expo for sophomores sponsored by Junior Achievement; a soft skills teacher fellowship where teachers learn the practice and teaching of soft skills; and a family engagement program educating parents about the career pathways program. The 12 organizations comprising the organization’s steering committee, including the New Orleans school district, workforce and economic development organizations, community advisory groups and philanthropic partners, are the secret sauce to getting on the other side of bureaucracy and putting New Orleans’ students first.

5. Private Enterprises: In Indianapolis, Kenzie Academy began in 2017 as a two-year venture-funded technology and apprenticeship program focused on software engineering skills for students from varying backgrounds, such 19-year-old high school graduates, formerly incarcerated individuals, and individuals with master’s degrees seeking new occupational opportunities. In year two of the program, students apprentice in Kenzie Studio, the company’s consulting arm.

To make the $24,000-a-year program accessible to more people, Kenzie encourages students to sign an income-share agreement that can delay payments until they complete the program and have a job paying at least $40,000. Kenzie also has a partnership with Butler University allowing students to receive a joint certificate from both organizations.

General Assembly, founded in 2011, is a for-profit “boot camp” that offers short and long, in-person and online courses in computer programming, data science, and product management. It leverages 30 campuses worldwide, more than 19,000 hiring partners, over 20,000 expert instructors, and a network of 70,000 global alumni. Through its Catalyst program, an enrollee can take courses at no upfront cost, paying back tuition in manageable monthly installments only after obtaining a job paying more than $40,000.

In sum, finding good paying jobs doesn’t necessarily require college degrees. There are other “opportunity rich” employment options for those without a bachelor’s degree that move individuals into the middle class and into careers worth having. And for those who do go on to college immediately after high school, there are new ways emerging of supporting young people while they are at college so that they attain a degree in no more than six years.

Creating an Occupational Identity and Vocational Self

These innovative programs help America’s young people develop an occupational identity—the conscious awareness of themselves as workers—and hence a vocational self. These pioneering efforts can counter young people’s disengagement in school and the disappointment millennials express when they talk about their educational experiences.

These types of programs also help young people build the social networks they need to prosper in life. As the saying goes, it’s not just what you know but who you know. This is a form of what analysts call a network approach to developing social capital—an approach based on the distinction between bonding social capital and bridging social capital.

Bonding social capital occurs within a group and reflects the need to be with others like ourselves, providing personal emotional support, companionship, and validation. Bridging social capital occurs between social groups and reflects the need to connect with individuals different from ourselves, expanding our knowledge, social circles, and resources across features like race, class, or religion. It also includes how people and institutions interact with each other in a power relationship or hierarchy, like a community organization and a government agency. Bonding and bridging social capital are complementary. As Xavier DeSousa Briggs says, bonding social capital is for “getting by” and bridging social capital is for “getting ahead.” It is the latter that propels young people to opportunity, general wellbeing, and responsible citizenship—all key dimensions of the American Dream.

Four-year college graduates are dissatisfied with the return they are getting on their investment, and they are dissatisfied even in the face of the benefits they receive by virtue of their bachelor’s degree. It’s possible to break this cycle, and it’s possible to get better outcomes. To start, students can choose their college based on how well it supports upward mobility, pursue an alternative to college, or find ways to integrate college and career readiness into their K–12 education. A host of innovative efforts are underway to help students do just that.

Bruno V. Manno is senior advisor for K–12 education reform with the Walton Family Foundation.