The Decline of the American Dream: Linking Higher Education, Debt, and Housing Policy

Over the last several decades, the cost of attending college has risen far faster than inflation and wage growth (1). A major driver of this trend is the expansion of federal student loan programs, which began in the late 1970s and continued through the 1990s and 2000s. As these loans became more widely available and generous, students gained access to large amounts of money upfront. Because the payments are delayed until after graduation, students and families did not feel the immediate pain of rising tuition. Research, including studies from the Federal Reserve Bank of New York, shows a clear link between the expansion of loan availability and tuition increases. The relationship is not perfect, but the trend is clear: when nearly every student can borrow easily, demand remains high even as prices climb, allowing schools to raise tuition without fear of losing enrollment.

Public universities operate much like non-profits: they cannot distribute profits to shareholders or executives. Any surplus revenue must be reinvested back into the institution. University presidents and senior leadership are evaluated by governing boards on growth-based performance metrics. Two of the most influential KPIs are student-body growth and institutional prestige. To attract more students, universities invest heavily in amenities such as new residence halls, dining complexes, recreation centers, athletic expansions, modern labs, and campus “experience” upgrades (2). These amenities drive applications, rankings, and visibility, all of which support the KPIs that influence a president’s job security and compensation. If enrollment or prestige stagnates, leadership risks being replaced. This incentive structure reinforces a continuous cycle of raising tuition, expanding facilities, and increasing spending.

The financial justification for these rising costs is rooted in the earnings gap between high school graduates and college graduates. In 2024, the median annual income for someone with only a high school diploma was about $49,000, while a bachelor’s degree holder earned around $79,600 — roughly a $30,000 annual advantage. Meanwhile, the average student loan debt for a graduate of a Texas public university was about $33,700 (3). On paper, it appears that the financial payoff of college could be recouped in a single year. But this logic breaks down for several reasons.

First, the earnings data are averages. Many students graduate with degrees that lead to far lower starting salaries — often in the $35,000 to $50,000 range — which dramatically reduces the value of the degree relative to its cost. The major someone chooses often determines financial outcomes more than the degree itself. Stated differently, the specialty you study matters far more than just graduating with a degree.

Second, the cost of living, particularly housing, is rising faster than wages, absorbing any “profit” that might have been generated from higher education, even before factoring in the loan payments. Inflation was as high as 9% in recent years, with specific sectors seeing year over year increases of over 40% (4).

A third complication is geographic. Many higher-paying jobs for college graduates are concentrated in major cities, where housing and lifestyle costs are much higher, often $20,000 to $30,000 more per year than in smaller towns. This generally higher cost of living absorbs most if not all of the increased wages gained from higher education and is then coupled with inflation that is outpacing an increase of wages.

As more young adults pursued degrees and sought higher-paying jobs, they flocked to urban areas where opportunities are clustered. This increased demand for limited housing pushed urban home and rent prices even higher. The combination of student debt and high living costs has pushed the median age of first-time homebuyers to nearly 40, a significant shift from prior generations who often bought homes in their mid-20s.

To make the situation worse, between 2010 and about 2023, extremely low interest rates on home mortgages created a unique housing-market dynamic. The average 30-year fixed mortgage rate fell into the low 3 percent range, making borrowing cheap and enabling many homeowners, and investors, to purchase single-family homes (SFHs) with relatively low monthly debt service. With low rates, both small and large real estate investors took advantage of the opportunity and began buying up a large portion of inventory. Today, investor-owned single-family homes account for roughly 20% of the nation’s 86 million SFHs, a sharp rise from the 11% investor owned in 2010 (5). The surge of investor buying, combined with homeowners locking in ultra-low rates, drained inventory from first-time buyers. As of 2024, interest rates increased to 7% making houses significantly less affordable and effectively freezing mobility. Existing homeowners were reluctant to sell, while new buyers were priced out entirely.

These economic pressures have created a broader cultural impact. Many young people followed the traditional path of going to college, taking on debt to graduate, and working hard, only to find that homeownership and financial stability remain out of reach. This disconnect has contributed to a sense of disillusionment with the American Dream and is threatening its longevity (6). When the promised pathway to success no longer aligns with lived reality, trust, optimism, and patriotism begin to erode. The affordability crisis linked to rising tuition and housing costs is not just a financial or policy issue, it is reshaping how an entire generation views opportunity, fairness, and the future of our country. If the system is not recalibrated, continued frustration could push future generations toward alternative political ideologies such as socialism or communism, not out of rebellion, but out of a belief that the traditional American system no longer works for them.

So, what is next? How do we get things back on track? There are 2 main things we can do together.

First, we need to teach our children and young adults personal financial literacy. This alone will not solve the problem, but it will give them an edge, helping them to avoid unforced errors and make smarter financial choices. Personal finance works a lot like blackjack. Even if you play by the book, you might not win, but it gives you the best odds for success. Financial literacy is “the book” in this case.

Second, we need to change the paradigm as it relates to college. Going to college to get a 4-year degree is a good option for some, especially those who are seeking specific specialties such as engineering, technology or medicine, but it is not the only path. Not only is it not financially feasible for some paths, but with the expeditious rollout of AI and the onshoring of manufacturing, skilled labor is more important than ever. We need to collectively work to remove the stigma of not going to a 4-year college and instead learning a trade such as welding, plumbing or being an electrician.

Third, citizens must become more informed and more engaged in both local and national politics. This does not mean voting along party lines, but for leaders who genuinely have the people’s best interests in mind. We should support representatives who prioritize rebuilding the American middle class, not those who funnel money toward endless wars or policies that enrich corporations and banks while ignoring the struggles of working Americans. Our own nation is facing an affordability crisis that threatens its stability and unity. It’s time to redirect our attention and resources back to strengthening America from within. If this does not happen through education and democracy, it will happen through the governmental force.

References

1.     College tuition and fees at public four-year institutions have increased by approximately 220% from 1973–74 to 2024–25, compared to about 150% for general inflation over the same period. For the Bennett Hypothesis (linking federal loans to tuition hikes), a 2015 Federal Reserve Bank of New York study estimates that a $1,000 increase in subsidized loan limits led to a 60-cent tuition increase per dollar. U.S. Department of Education, National Center for Education Statistics, "Digest of Education Statistics 2024," Table 330.10; David O. Lucca, Taylor Nadauld, and Karen Shen, "Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs," Staff Reports 733 (Federal Reserve Bank of New York, January 2015).

2.     Spending on student amenities (e.g., recreation centers, dorms) at public and private nonprofit four-year institutions rose by over 50% (inflation-adjusted) from 2000 to 2019, contributing to the "amenities arms race." Enrollment at U.S. postsecondary institutions grew ~20% from 2000 to 2020. National Center for Education Statistics, "Higher Education Spending Patterns" (2023 update); Robert Kelchen, "Higher Education Accountability" (Johns Hopkins University Press, 2018), 145–150.

3.     Median weekly earnings in Q3 2024: $946 ($49,192 annualized) for high school graduates (ages 25+); $1,533 ($79,716 annualized) for bachelor's holders. Texas average undergraduate debt at public four-year institutions: ~$24,700 (2023 graduates; statewide borrower average $35,682). Major-specific starting salaries: Engineering ~$76,700; humanities ~$68,200 (2024 projections). U.S. Bureau of Labor Statistics, "Usual Weekly Earnings of Wage and Salary Workers" (October 17, 2024); Texas Higher Education Coordinating Board, "Making Student Debt Manageable" (2024); National Association of Colleges and Employers, "Winter 2024 Salary Survey."

4.     U.S. CPI peaked at 9.1% YoY in June 2022; sectors like energy (+41% YoY, 2022) and used vehicles (+40% YoY, 2021) exceeded 30%. Urban cost-of-living premium: Major metros (e.g., NYC, SF) 25–50% above national average, equating to $15,000–$35,000 extra annually for a single adult. Housing costs rose ~7% annually post-2020, outpacing wage growth (~4%). U.S. Bureau of Labor Statistics, "Consumer Price Index Summary" (2024); Council for Community and Economic Research, "Cost of Living Index" (2024).

5.     Median first-time homebuyer age: 40 (2025 NAR report, covering July 2024–June 2025 purchases; up from 38 in 2024). Single-family homes: ~86 million total; investor-owned share ~20–25% in 2024 (up from ~15% in 2010; includes small landlords). 30-year fixed mortgage rates: Lows of 2.65–3% in 2020–21; averaged ~7% peaks in 2023–24, now ~6.22%. National Association of Realtors, "2025 Profile of Home Buyers and Sellers" (November 2024); CoreLogic, "Investor Activity in Single-Family Homes" (2024); Freddie Mac Primary Mortgage Market Survey (November 2025).

6.     53% of U.S. adults (higher among under-35s: ~60%) say the American Dream is unattainable due to costs like housing and education (2024 poll). Median welder salary: $51,000 (May 2024). Pew Research Center, "Americans' Views on the American Dream" (July 2024); U.S. Bureau of Labor Statistics, "Occupational Employment and Wage Statistics: Welders" (May 2024).