The expected income and wealth boost from earning a college degree has slowly been shrinking while the cost of college and student debt burden has been rising, according to a report from the Economic Policy Institute (EPI).

The so-called "college premium" steadily rose throughout the 1980s and early 1990s, but the growth began to slow by the mid-1990s, EPI found. (A 2018 report from the St. Louis Fed noted that this was an ongoing trend, particularly for people of color.)

At the same time, degree holders still believe college attainment leads to future financial comfort.

"Financial well-being was higher for those who attended college, and even more so among those who completed at least an associate degree," the Federal Reserve Board's eighth annual Survey of Household Economics and Decisionmaking (SHED), which surveyed more than 11,000 adults in November 2020, stated. "In contrast to associate degrees, certificates and technical degrees were associated with only modest increases in well-being over those reporting a high school degree."

And while research and recessions consistently show that higher education attainment generally leads to better financial outcomes, the actual value of the college premium is being revisited.

“We’ve been telling everyone college is the golden ticket,” ‘Making College Pay’ author Beth Akers told Yahoo Finance Live (video above). “Not really. It’s an investment, and like any other investment you need to make critical decisions and use economics to make sure that you’re making a choice that’s going to pay off for you.”

Mismatch between the data and expectations

When analyzing the "college premium," researchers at the St. Louis Fed looked at not only income gains but also wealth accumulated by college grads — such as stocks or real estate — to determine the value of a college degree.

"Income... is a really good snapshot of where you are currently financially speaking, how you're doing right now, whereas wealth speaks to a future mindset," Ana Hernandez Kent, senior analyst at the Institute for Economic Equity at the St. Louis Fed, told Yahoo Finance.

"Are you going to be able to pay down debt?" she added. "Are you going to be able to meet major wealth milestones in life, like putting a down payment on a house or paying for college as we're talking about now for yourself or for your children? Wealth is a more complete and comprehensive picture."

Over the years, that wealth premium has dropped steadily.

The recent SHED analysis also highlighted signifiant disparities in income as well between races, noting that "within every level of education, the earnings of Black and Hispanic adults are below the earnings levels for adults overall."

And while the wage premium has mostly held up, "the wealth premium — it's a totally different story," Kent said. "It's the opposite effect. It's decreased for younger generations to the point where, for example, for Black graduates we can't statistically distinguish it from zero for the 1970s and 1980s-born Black college graduates."

Aside from the cost of higher education — which has been rising — Kent said that Black graduates have also been subject to discriminatory practices, which could explain the massive disparity.

"For Black college graduates, for example, who are born in the '80s, we see that the majority of them still, as of our most recent 2019 data, had college loans, whereas only about half of white college graduates did, and their actual balances are higher too," Kent explained. "We know there are things going on like predatory lending, steering Blacks into less favorable terms in their lending ... which might potentially impact why, especially for Black graduates, the premium for wealth doesn't seem to be there in the same way."

There's also a gender gap that could affect the college wealth premium.

According to new analysis by the American Association of University Women (AAUW), women borrow an average of $31,276 for college, which is significantly more than what men borrow, at $29,270.

Black women are also hit by a double-whammy: One year after graduation, Black women on average owed almost $41,500 as compared to $33,800 borrowed by an average white woman, or $27,600 borrowed by an Asian woman.

“This is yet another example of how systemic racism and systemic sexism conspire in a way that puts Black women at an even greater disadvantage,” AAUW CEO Kim Churches said in a press release. “The specific needs of women of color must be paramount in any policies we adopt to address this crisis.”

'Parent premiums'

At this point, according to a new study by the Georgetown University Center on Education and the Workforce (CEW), leveling inequities in the U.S. higher education system would be an expensive but ultimately worthwhile undertaking.

And separate research shows that there is also a "parent premium" that seems to advantage graduates who have parents who graduated from college.

A Pew Research analysis of SHED data found that "first-generation college graduates are not on equal footing with their peers who have college-educated parents."

"What we see is that first-generation college grads were more likely to have had to borrow to finance their education," Pew's Richard Fry, author of the report, told Yahoo Finance. "If you look at their outstanding debt for their education, they owe bigger amounts as well. So there is some evidence that one way college-educated parents are helping their children is ... in paying for college."

Student loan balances increased by $29 billion to $1.58 trillion in the first quarter of this year, according to the New York Fed, and the debt burden disproportionally disadvantages minority groups.

Those with at least one college-educated parent are not only "more likely" to complete college compared to first-generation peers, but they also "have substantially higher incomes and more wealth than those who are the first generation in their family to graduate from college," Pew noted.

The median wealth of households headed by a first-generation college graduate is $152,000, Pew found, while the median wealth of households headed by a second-generation college graduate is $244,500.

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Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected]. Follow her on Twitter @aarthiswami.

Read more:

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• American credit card balances see 'remarkable' drop while student loan debt keeps rising

• Former Obama official placed in charge of government's $1.56 trillion student loan portfolio

• Student loan forgiveness: New Education Department data highlights benefits of cancellation

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