While college is generally a good investment, it has become increasingly expensive over the last several decades to attend a four-year program, as costs have risen considerably faster than wages—especially wages for all but the very top of the income distribution. This means that college has become increasingly unaffordable for those families who need it most, if we are to increase social and economic mobility. Of course, one result of the increasing unaffordability of college education is that fewer people get a college degree, which could help account for the 4/7  BIS central bankers' speeches  slowdown in the growth rate of the college-educated workforce that I discussed earlier. However, recent research by my colleagues at the New York Fed shows that young Americans have mostly adjusted to rising tuition and fees not by foregoing college education, but rather by amassing more debt. Over the past few decades, funding for higher education has shifted from state and local sources to students and their families. While the federal student loan program has helped ease that transition, the result has been that more students are leaving college with significantly higher amounts of debt. In fact, student loan debt has grown 170 percent over the last decade and now totals over $ trillion.16 To be clear, I don’t want to downplay the importance of student loans. When accompanied by college completion, they allow students to make what generally turns out to be a very worthwhile investment. I personally benefited from student loans while at Berkeley.

But, compared to alternative ways of financing higher education—such as greater government support for public universities and increased federal education grants—student loans can have adverse consequences. This is especially true when loans are taken on by those who don’t complete their education. For borrowers with large student loan balances, such consequences include slow or late repayment, serious delinquency, and default. 17 New York Fed researchers have shown that such unfavorable outcomes are related to family background. Thus, at times, student loans can have the perverse effect of limiting social mobility. In addition, our research indicates that, for any given level of educational attainment, workers who have student debts are less likely to own homes than those who got their education without incurring debts. Certainly, for those who have difficulty repaying their student loans, the resulting damage to credit scores will make obtaining a mortgage very difficult, especially under today’s lending standards. A student loan default, which is unhappily common, means that borrowing to buy a home is essentially impossible. And, we know that these factors—slow repayment, delinquency, and default—are most prevalent among those from modest family circumstances. This connection between rising college costs, increased student borrowing, and reduced homeownership is important for inequality and social mobility because, for the great majority of American families, increasing home equity is the major form of wealth accumulation.18 Thus, changes over the last few decades in the way that college is financed mean higher education is less able to lift people from poverty into the middle class.