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The American Dream is failing some college grads

One of the tenets of the American Dream is that earning a college degree will provide a pathway for climbing out of poverty. It turns out that commonly held belief comes with a big caveat.

College graduates who come from poorer families largely miss out on the same type of earnings boost that their cohorts from wealthier backgrounds earn across their lifetimes. That's according to new research from the Brookings Institution's Brad Hershbein, who analyzed career earnings profiles for people tracked by the Panel Study of Income Dynamics.

The research comes at crucial time in the nation's discussion about the benefits and costs of college, given President Obama's push to provide free community college on the grounds that a high school education isn't enough to succeed in the changing economy.

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But Hershbein's research indicates that a college degree may not provide an effective weapon against income inequality. That's because his study found children from poorer backgrounds aren't catching up with wealthier peers even when they earn a college degree.

"If a college degree is not the great equalizer we hoped, strategies to increase social mobility by promoting post-secondary education will fall short," Hershbein wrote on Brooking's blog. "A more comprehensive approach may be needed."

To be sure, a college degree provides an earnings bump regardless of a graduate's family background. But rich graduates are earning far, far more than their poorer former classmates.

How much more? By mid-career, college grads who grew up in wealthier families are earning about 50 percent more than graduates who grew up in poorer homes, the research found. In dollars, that means grads from higher-income childhood homes are earning almost $100,000 by their late 40s, while grads who grew up poor are earning only about $50,000.

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Poorer kids, according to Hershbein's definition, come from families that earn less than 185 percent of the federal poverty level, or the threshold for qualifying for reduced lunch programs in the country's schools. Many Americans would consider some of those children to be middle-class, given that it would include families of four making almost $45,000 per year. By comparison, a family of four is considered below the poverty level if they earn about $24,000.

While some might argue that poorer children might be better off learning a vocation than going to college, it's important to note that a college degree does, on average, help all grads regardless of family wealth earn more across their lifetimes.

Grads who grew up in families earning below 185 percent of the federal poverty level earned almost double what those in the same income group but with only a high school degree, Hershbein found. On the other hand, college grads from wealthier families earned 162 percent more than those with only high school degrees.

Why is it happening?

"There are a host of possibilities, from family resources during childhood and the place where one grew up, to the colleges that low-income students attend," Hershbein noted, adding that he and his colleagues are researching these questions at the moment.

Like previous research from the Federal Reserve Bank of St. Louis, the findings indicate that college may not be the magic bullet that helps all students, regardless of background, achieve equality in social mobility and earnings growth.

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