The combination of high inequality and low mobility is problematic, because it means that being born into a low-income family is more consequential today than in the past. Since education is a key determinant of upward mobility, one way to increase economic mobility in the United States would be to increase overall post-secondary educational attainment. There are, however, a number of important barriers to achieving that goal. First, many high school students and their parents appear to lack accurate information about the returns obtained from a college education. New York Fed research shows evidence of systematic underestimation of the average benefits—and overestimation of costs—of a college education, with larger biases among lower-income and non-college households. Research by Caroline Hoxby and Sarah Turner shows that among low-income high school students, even very high achievers are poorly informed about the academic options that are available and their effects on career opportunities. This research finds that the provision of relevant information can lead to markedly better outcomes. A second impediment is the lack of preparedness among new college entrants, with large numbers of those students needing remedial courses that earn no college credit. Low readiness contributes to persistently low college completion rates, especially among lower-income, parttime, and nontraditional students. Higher dropout rates, in turn, contribute to a substantial reduction in the net expected and realized returns from college attendance. The third major barrier to college attendance and completion is the rise in the cost of a college education.

While a college education is generally a good investment, the cost of attending a fouryear college has risen considerably faster than wages over the last several decades. This means that college has become increasingly unaffordable—which can act as a drag on economic mobility and the growth of a college-educated workforce, and by extension, on productivity growth and living standards. As has been well documented by my New York Fed colleagues, many young Americans have adjusted to rising tuition and fees by taking on more debt. This trend highlights the importance of the federal student loan program, which has helped mitigate the impact of the shift in financing of 1/2  BIS central bankers' speeches  higher education from state and local funding to students and their families over the past few decades. However, the end result is that more students leave college with significantly higher amounts of debt. Student loan debt has more than tripled over the past two decades and now totals over $ trillion. It is important to consider what these changes in financing higher education mean for economic mobility. First, New York Fed researchers have documented that a large percentage of student borrowers—especially those who attend less selective colleges or drop out—have trouble staying current on their loans, and often become delinquent and default on their debt. We also know that these factors—slow repayment, delinquency, and default—are most prevalent among those from more modest family circumstances. In addition, there is evidence that student debt acts as a drag on homeownership.