As the college degree loses its shine for many Americans, the economy still favours it

America’s economy has increasingly been described as K-shaped. Growth continues, markets rise and aggregate spending holds up. But the gains are uneven. Wealthier households benefit from appreciating stocks and home values, while lower-income families absorb higher grocery bills, rising rents and a slower hiring market.

Over the past year, economists have pointed to multiple indicators of this divergence. Asset appreciation has largely lifted those who already own financial and property wealth. Inflation has been most visible in essentials such as food and dining. Consumer spending, however, has become one of the clearest lenses through which inequality can be observed.

A recent dataset released by the Federal Reserve Bank of New York adds another dimension to this divide: educational attainment.

A spending gap shaped by education

The New York Fed examined monthly consumer spending data for 200,000 Americans between January 2023 and December 2025. After adjusting for inflation, retail spending among Americans without a college degree rose by about 4% over that period. For those with a college degree, it rose by nearly 6%.

Month after month, the gap persisted. Degree holders averaged a 0.14% increase in spending relative to the previous month. Their non-degree counterparts averaged 0.05%.

“Despite the relatively more difficult labor market faced by college graduates in 2025, they are continuing to consume more than nongraduates do at the same or higher rate than they did in the previous few years,” the New York Fed researchers wrote, according to Fortune. “The difference in the trend in retail spending between college graduates and nongraduates is consistent with the story of a ‘K-shaped economy.’”

Spending has long been central to the argument that the economy can grow even when many households feel constrained. According to Moody’s Analytics, the top 10% of Americans now account for around 50% of spending. The New York Fed’s analysis is the first to disaggregate this pattern by educational attainment.

The result is not a sudden revelation, it is a reinforcement of a structural pattern.

The long arc of degree premiums

Educational attainment has often mapped onto where Americans live, the kinds of jobs they hold and how secure those jobs prove to be in downturns. The earnings premium associated with a college degree is well documented.

More than a decade ago, researchers at the Social Security Administration estimated that lifetime earnings for college graduates could exceed those of high school graduates by between $630,000 and $1.5 million, Fortune reports. That income gap has implications for savings, homeownership and resilience during economic shocks.

Recent labour market data point in the same direction. November research from the Federal Reserve Bank of St. Louis examined unemployment trends across education levels. It found that workers with only a high school diploma consistently faced unemployment rates at least 2.3 percentage points higher than college graduates. During downturns, the divergence widened.

The New York Fed’s spending data do not exist in isolation. They sit within this broader framework in which income stability and job security remain closely tied to education.

Doubts about college grow

The persistence of the degree premium arrives at a moment when many young Americans are reassessing the value of a four-year education. College enrolments have softened. Affordability concerns, a weaker entry-level job market and anxieties about artificial intelligence reshaping white-collar work have contributed to hesitation.

Alternatives are gaining ground. Community colleges have seen new undergraduate registrations surpass those at four-year institutions in the most recent fall term. Trade pathways are drawing interest, particularly in fields perceived as insulated from automation and offering steady pay.

The data do not suggest that every college graduate is financially secure, or that every non-graduate is struggling. Younger graduates in particular face high housing costs and student debt. Cultural trends such as high discretionary spending among Gen Z complicate the picture. Analysts have talked about patterns described as “treat culture” and “doom spending,” where consumption becomes a coping mechanism rather than a reflection of surplus income.

Gen Z is projected to become the highest-spending generation in history over the coming years. Over the next few decades, its combined income could reach $74 trillion. How that spending power distributes across education levels will shape the next phase of the K-shaped economy.

What the divergence means

The New York Fed’s findings do not settle the debate over whether college is worth its cost. They do, however, indicate that in the current structure of the American economy, educational attainment remains linked to the capacity to participate in growth.

If the top tier of earners already accounts for half of total spending, as Moody’s Analytics reports, and if spending growth among degree holders consistently outpaces that of non-degree holders, then the divergence risks reinforcing itself. Higher earnings support greater consumption. Greater consumption supports aggregate growth. Growth narratives then reflect the behaviour of those already positioned to spend.

For students weighing whether to interrupt their education altogether, the data suggest that partial disengagement carries risk. The St. Louis Fed’s unemployment analysis indicates that downturns tend to expose educational divides more sharply. The New York Fed’s spending data show that even in periods of expansion, the pace of participation differs.

The college degree may be losing cultural prestige in some quarters. Its economic function, however, appears intact. In a K-shaped economy, education continues to mark one of the lines along which the branches separate.Ready to navigate global policies? Secure your overseas future. Get expert guidance now!