A friend of mine re-posted a tweet comparing the cost of housing and education in 1973 vs. 2022. As expected, everything costs significantly more in 2022 while income has not grown at the same rate. The point of the tweet was to debunk the Boomer mentality of, “Just pay your student loans like we did” as doing so is clearly a completely different animal today.
Most of the comments on my friend’s post we bashing the expense and income numbers and, therefore, disputed the legitimacy of the original point. So, I decided to do my own Googling to see what I could learn. For simplicity, I compared 1970 and 2020:
| 1970 | 2020 | |
|---|---|---|
| Average Annual Wages1 | $ 6,186 | $ 55,629 |
| Median Home Price2 | $ 24,400 | $ 329,000 |
| Median Home Price as Multiple of Annual Income | 3.9x | 5.9x |
| Average Monthly Wages | $ 515 | $ 4,636 |
| Median Monthly Rent3 | $ 108 | $ 1,104 |
| Rent as a Percentage of Income | 21% | 24% |
| Average University Tuition & Fees4 | $ 394 | $ 10,563 |
| Tuition as a Percentage of Income | 6.3% | 19% |
| 1. www.ssa.gov/oact/cola/AWI.html 2. fred.stlouisfed.org/series/MSPUS 3. ipropertymanagement.com/research/average-rent-by-year 4. www.intelligent.com/1970-v-2020-how-working-through-college-has-changed/ |
So what does this quick “research” actually tell me as compared to the original hypothesis? Simply put, wages have not kept up with the cost of living over the past 50 years. It just isn’t as wide a gap as the original post implied.
The most compelling comparison for me is the median home price as a multiple of income. In 1970, the median home price was 3.9 times the average annual wages. Compare this to 2020 where it rose significantly to 5.9 times the average annual wages. Ouch.
The education row in the original is kind of a red herring for me since for much of the University of California’s existence, tuition and fees were free in California. So the 1970 figure of $150 is misleading in my mind. Instead, I did a more universal search for tuition and fees across the US and found that the increased cost of education is staggering. This is made even worse when you consider the minimum wage in those years. Looking at minimum wage, a compelling metric is the number of hours per week required to pay one year’s tuition based on the federal minimum wage:
| Year | Tuition & Fees | Federal Minimum Wage | Hours Required to Pay Tuition | Hours per Week Required to Pay One Year Tuition |
|---|---|---|---|---|
| 1970 | $ 394 | $ 1.60 | 246 | 5 |
| 2020 | $ 10,563 | $ 7.25 | 1,457 | 28 |
The numbers are even worse for private Universities as you would imagine.
Conclusion
Everyone knows I am a liberal at heart. As such, the Biden administration’s move to forgive many student loans is fine by me. Sure, we will end up footing that bill indirectly, but I’m ok with that a. because I’m all for an educated society and b. the compounding interest charged on student loans is predatory and out of control. I took out a student loan in the mid 90s to help pay living expenses and I paid it off years after graduating. So I fall into that “I paid my loans off” category. If though that is the case, I am still supportive of President Biden’s forgiveness of many student loans. That’s just my 2¢ (or 25¢ adjusted for inflation).
I’m curious what you think. Drop a comment below to engage.