Authors
Education, and more specifically a college degree, is a fundamental investment in human capital.1 Each year, millions of young adults across the United States decide whether to enroll in college. In financial terms, they consider whether the higher pay made possible by a college degree is enough to compensate for both college expenses and the time spent away from friends, family, and work while attending college. So the increase in earnings associated with a college degree is critical to the college enrollment decision. Numerous studies show that this increase is, in fact, large on average, but few have examined returns to college for American Indian and Alaska Native (AIAN) students.
A Native student bears an eagle plume on her mortar board during the 2016 Salish Kootenai College graduation ceremonies in Pablo, Montana.
Photo: American Indian College Fund
We use data from the 2009-2014 American Community Survey (ACS) to address this gap in the literature. We find that earnings typically increase substantially for AIAN and other students who graduate from college. College is thus a potentially good investment for all racial and ethnic groups. However, we also find that college completion is associated with a widening of the gap in earnings between AIAN and non-Hispanic white workers, raising questions that merit attention and further research.
Averaging across all workers, we find sizable gross returns (i.e., before expenses) to higher education. After controlling for age (as an indicator of potential experience), we find that college graduates typically earn 60.5 percent more than high school graduates.2
The returns to college education, however, differ by race. Our primary focus is on returns for AIAN students. After controlling for many factors,3 we find that the college earnings premium—the increase in earnings among workers with a college degree relative to workers with only a high school diploma—is 49.6 percent for AIAN workers. This is a large gain. However, the college earnings premium among non-Hispanic whites is 60.5 percent, or 10.9 percentage points higher. Thus, although college completion is associated with large earning gains for both AIAN and non-Hispanic white workers, the lower AIAN college earnings premium means that college completion also goes hand in hand with an increased gap in earnings between AIAN and non-Hispanic white workers.
This wider post-college earnings gap is troubling. Most broadly, it raises concerns that either the education system or the labor market does not function as effectively for AIAN individuals as for non-Hispanic whites. The difficult questions that arise and need further study include whether AIAN college students are less well prepared for college by the K-12 educational system, whether they have equal access to high-quality colleges, whether colleges serve AIAN students less effectively, and whether college-educated AIAN workers experience significant discrimination in the workplace. Whatever the cause, the lower AIAN college premium reduces the incentive to attend college, further disadvantaging AIAN individuals and communities and discouraging investment in programs that promote AIAN college completion.
Our results also have important implications for policy discussions about student loan debt. The fact that AIAN college graduates experience gains in earnings but to a lesser extent than non-Hispanic whites suggests that AIAN adults will have a harder time paying off college debt. The negative impact of heavy debt burdens on the overall financial health of households can in turn exacerbate wealth inequalities, reduce intergenerational mobility, and further discourage AIAN students from pursuing higher education. Accordingly, policies that aim to increase AIAN college participation and completion may be more effective if they favor grant aid over loans. A related policy would be to increase loan forgiveness for AIAN students, perhaps conditional on community service work.
The findings presented here are part of a more detailed investigation of how post-college outcomes differ by race. The results of this broader investigation will be discussed on March 23 in Washington, D.C., at the Federal Reserve System’s conference “Strong Foundations: The Economic Futures of Kids and Communities” and in a forthcoming Center for Indian Country Development Working Paper by Peterson and West. Even the more detailed results do not provide definitive answers on why returns to college differ by race, but they highlight the need to identify interventions that increase college enrollment and completion and combine them with interventions that address educational and labor market disparities that are unexplained by, or even exaggerated with, college completion.Endnotes
1 The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, or St. Catherine University.
2 Earnings are measured as total pretax wage and salary income for the year previous to the surveyed year. This includes wages, salaries, commissions, cash bonuses, tips, and other monetary income from the individual’s employer. Earnings do not include income from business, farm, self-employment, Social Security, public assistance, or other income that has not been earned from an employer.
3 These estimates control for a number of factors that also affect earnings, such as potential experience (via linear and quadratic age variables), gender, marital status, family structure (number of children and adults in the household as well as age of the youngest child), veteran status, rural location, and whether an individual’s local area (or Public Use Microdata Area) includes a homeland (e.g., an AIAN reservation).
