Historically, college was one of the safest bets to help guarantee a person can afford to pay their bills. Unfortunately for today’s college graduates, this bet has become less of a sure thing over the past 10 years. Strong rental price growth following the recession and weaker wage growth have strengthened the financial crunch many Americans feel as they enter the workforce.
In 2009, graduates entered a disastrous labor market, with an unemployment rate over nine percent – a far cry from 2019, where the current unemployment rate is 3.6 percent. However, despite the stronger labor market, the newest crop of graduates are worse off than their 2009 counterparts when it comes to housing. Over the past decade, the share of income recent college graduates can spend on the median rent increased from about 40 percent to 45 percent.
Growth in rental prices has dwarfed income growth for early-career earners, contributing to this affordability problem. While national rents shot up about 30 percent over the last decade, median income for young college graduates increased by less than half that rate.
Although the share of income spent on rent is typically way less for college graduates than non-graduates, not all degrees are created equal. Since 2009, affordability has actually deteriorated faster for 45 different college majors than it has for those who without a bachelor’s degree. U.S. history majors saw a 20 percentage-point increase in the share of their incomes going to housing.
Meanwhile, materials engineering majors faired better over the past 10 years — they enter the work force spending less than the recommended 30 percent of income on rent, and their incomes kept up with the last 10 years of strong rent growth.
Demand and supply for certain skills changes over time, and with those changes comes differences in wage growth. But in general, the landscape around going to college has changed a lot in recent years. There are higher levels of student debt, more jobs requiring college degrees, and more graduates than ever – all factors that can change calculus about going to school.
An important thing for prospective students to keep in mind is that the career arcs can vary by major. Degrees that typically feed into graduate school or doctoral programs may have much lower early-career incomes than one would expect, but those majors might pay dividends once workers gain more experience and credentials. Take biology, for example – biology majors may work in a lab as a research assistant before going on to graduate school, where they come out as medical doctors or professors.
Bright spots withstanding, it is a hard time to be coming of age in the current rental market, with or without a college degree. For years, the amount of money college graduates made in excess of non-graduates was on the rise, but that premium has been practically flat since 2000. On top of that, the way we pay for college has changed, with student debt payments more than doubling in the last 10 years.
Today’s students are left with the difficult task of figuring out which skills are in demand, which skills will stay in demand, where they want to live, which fields they might enjoy, and how to pay for it all. It’s an incredibly difficult problem for anyone to solve – much less someone who just turned 18.