What happens when smart people trend follow, misinterpret their data, and lightly skim essential subjects? We can get consequential social failures that persist over very long periods. Let’s examine a real-time occurrence: The case of the Federal Reserve researchers’ $1.7 Trillion Blind Spot.
How Federal Reserve Researchers Miss Consequential Insights in Their Own Data
For decades, one statistic has held mythic power in American education policy: college graduates have lower unemployment rates than those without a degree. But what if this trusted metric hides a more troubling reality, one that matters to everyone carrying a share of the $1.7 trillion in student loans? A 2024 report by the Burning Glass Institute and the Strada Institute for the Future of Work found that recent graduates in jobs that do not typically require a degree earn far less than graduates in jobs that do, which leaves them “on weaker financial footing as they start their careers, especially those with substantial student loan debt.”
The other metric that underlies the “any college is good” belief is the significant college wage premium. In simple terms, the college wage premium shows that the median college graduate earns more over their lifetime than the median high school graduate. I have written extensively on this issue, highlighting the limitations of a simplistic approach. Here is a good article to review: A Critical Analysis of College ROI Research: Georgetown University College Payoff.
Picture this: You’re hanging out with friends, and the conversation turns to their high school graduate considering college options.
Someone mentions they read that college graduates have much lower unemployment rates than high school graduates.
Everyone nods knowingly.
Case closed. College works. Right?
Hold on, not so fast. Let’s explore this point further.
I spend my time challenging conventional wisdom, and I recently came across something that should prompt every parent, student, and policymaker to pause and reflect.
Researchers at the Federal Reserve Bank of New York, yes, that Federal Reserve, published research in May 2025 documenting the employment advantages of college graduates, while the same bank publishes data that tells a more troubling story.[1]
The story they missed?
The unemployment rate for recent college graduates stands at 5.8 percent, well above the 4.0 percent rate for all workers aged 16 to 65, though below the 6.9 percent for young workers without a bachelor’s degree (as of March 2025). But 41.2 percent of employed recent college graduates work in jobs that do not typically require a degree.
Data: Federal Reserve Bank of New York, March 2025 (released April 22, 2025)[2]
The Shocking Reality Hidden in Plain Sight
About 55 percent of recent college graduates in the labor force are effectively employed, working in jobs that typically require their degree. The rest are unemployed or working in jobs that do not typically require a degree.
Let me break down what the Federal Reserve’s March 2025 data shows when you connect the dots they missed:
The Real Employment Picture for Recent College Graduates (Ages 22-27)
- 55.4% – Working in Degree-Required Jobs
- 38.8% – Underemployed (Working Below Degree Level)
- 5.8% – Unemployed
Source: Federal Reserve Bank of New York, March 2025 data. Shares of recent graduates in the labor force. The Fed’s 41.2% underemployment rate is a share of employed graduates, so it is converted here (94.2% employed x 41.2% = 38.8%).
Read that again.
About 55 percent of recent college graduates in the labor force are working in jobs that require their expensive degrees. The other 45 percent are either unemployed or in jobs that do not typically require a degree. In my view, many of them compete with high school graduates for the same positions and often win on the credential alone, which inflates their “success” rates.
This Isn’t New. It’s Been a Systemic Failure for More Than 35 Years
Key Insight: Federal Reserve data shows that underemployment among recent college graduates has consistently ranged between roughly 37 and 48 percent since 1990. For all college graduates, including those who have recently graduated, the underemployment rate has persisted at around 33 percent. This isn’t a temporary issue. It’s a structural flaw in our higher education employment system.
If any other industry saw a third of its products fall short of what was advertised for three and a half decades, we’d call it a scandal. When it comes to higher education, we often refer to it as “the college experience.”
How the Federal Reserve Missed Its Own Story
Here’s where it gets interesting. In May 2025, New York Fed researchers Rajashri Chakrabarti, Thu Pham, Beckett Pierce and Maxim Pinkovskiy published “The College Economy: Educational Differences in Labor Market Outcomes,” highlighting the higher employment rates of college graduates, a gap they attribute mostly to differences in labor force participation.
I read it and immediately noticed what they didn’t discuss: their comprehensive data on underemployment. So I submitted a comment on May 31st, pointing out that 41.2 percent of employed recent college graduates were underemployed and that the rate for all college graduates has been in the mid 30s since 1990 (the series runs between about 31 and 35 percent).
At the time of writing, they had not published it.
Maybe it was poorly written, or they are thinking about it, and it’s stuck in moderation. I don’t think I violated their comment guidelines (attached below). I was brief, relevant, respectful, and did not include links.
In my experience, authoritative sites can make it hard to challenge their thinking.
Sometimes the most telling part of institutional research isn’t what they say, it’s how long others wait to be heard.
The New York Fed’s Mixed Messages
The mixed messages get hard to ignore here. Just one month before that employment analysis, in April 2025, New York Fed economists Jaison Abel and Richard Deitz published ROI studies acknowledging that college provides questionable returns for significant portions of graduates.[3][4]
Return on Investment Comparison:
- Median of Graduates: 12.5% annual return on investment
- Graduate at the 25th Percentile: 2.6% annual return, labeled by the authors a “questionable investment” (the bottom quarter earn a lower return)
I think these results dramatically underestimate the problem, but that’s another story, which I will tackle in a later post. For now, we will run with their analysis.
Here is why we should be concerned about the New York Fed’s mixed messages: researchers at the same bank document the employment advantages of college, while their colleagues acknowledge that 25 percent of graduates receive questionable returns on their investment.
Now I hear you saying that 75 percent with good returns means a majority, and there’s nothing wrong with advocating for the benefits.
I agree with you if the 75 percent is right.
It’s not. By my math, it’s much lower.
However, even if it results in a 25 percent investment failure, given the high level of risk, advocacy should always come with a warning label.
These findings sit side by side, and I have not seen the bank bring them together into one message for families.
The $1.7 Trillion Question
With outstanding student debt of about $1.7 trillion and millions of graduates working below their qualification levels, we’re witnessing a systematic misallocation of human and financial capital.[5]
The Credential Inflation Trap
However, what makes this even more insidious is that the 41.2 percent of employed recent graduates who are underemployed don’t simply disappear. They create what I call “cascading displacement effects”: underemployed graduates take jobs that high school graduates could do, which can push those workers down or out.
The gap between the two rates (about 41 percent for recent graduates, about a third for all graduates) fits the New York Fed’s own note that many underemployed graduates work in “non-college” jobs that are “fairly skilled and well paid, and transition into better roles after gaining some work experience.” Still, a persistent third of all college graduates work in jobs that do not typically require a degree, where many compete with high school graduates.
Consider this scenario: A marketing coordinator position opens up. It requires basic computer skills, practical communication abilities, and some creativity. These are all skills that a motivated high school graduate can handle. But when many employers see a pile of résumés, they prefer the college graduate as “safer,” even when the degree adds nothing to job performance.
A 2017 study by Joseph Fuller and Manjari Raman of Harvard Business School, with Accenture and Grads of Life, estimated that as many as 6.2 million middle-skills jobs were at risk of degree inflation, that is, of shifting to a four-year degree requirement.[6] Part of the higher unemployment rate of young workers without a bachelor’s degree may reflect this competition.
We’re wasting college graduates’ education. And we’re systematically locking out capable high school graduates from positions they could perform excellently.
Why Smart Institutions Make Dumb Mistakes
So, why does a sophisticated institution like the Federal Reserve miss insights hidden in its data?
Having worked with major organizations for decades, I’ve seen this pattern repeatedly:
Patterns of Institutional Blindness:
- Methodological Inertia – Researchers default to traditional unemployment metrics rather than integrated analyses that might challenge established frameworks
- Departmental Silos – One team’s employment research does not draw on the underemployment data another team at the same bank maintains
- Confirmation Bias – Institutional assumptions about college advantages lead analysts to frame studies that confirm rather than challenge conventional wisdom
- Echo Chamber Effects – Academic and policy institutions make alternative interpretations difficult to recognize or validate
One Solution: Better Integrative Metrics
Introducing the “Effective Employment Rate”
Instead of focusing solely on unemployment rates, let’s measure the percentage of graduates working in jobs that require their degrees. This single metric would instantly transform discussions about college outcomes.
Imagine if we evaluated medical treatments the way we assess college degrees. “Great news! Only 5.8 percent of patients died during treatment!” while ignoring that 41.2 percent of the survivors did not get the full benefit of the treatment. We’d demand better metrics and better outcomes.
A Better ROI
I have written extensively about the financial measurement of the potential value of a college degree. The simple college wage premium is not an effective measure for evaluating the investment in a college degree. Instead, I have recommended a proper assessment of the Net Present Value of Lifetime Income after costs and taxes, compared to the benchmark median of a High School Graduate.
Honest risk assessment and disclosure
When discussing college investments, there should be an honest disclosure of the risks.
It’s not enough to say the median college degree returns 12.5 percent if a quarter of them return 2.6 percent or less. The Federal Reserve researchers give the quarter for whom college might not be worth it only a passing mention in their headline post and leave the detail to a separate post, which the parent or child eager to attend college may never open.
What This Means for You
If you’re a parent or student: Don’t let unemployment headlines fool you. When about four in ten recent graduates are underemployed, you need to ask much more complex questions about specific programs, schools, and career outcomes.
If you’re a policymaker: Stop using incomplete metrics to justify policies affecting millions of lives and billions in taxpayer dollars. Demand integrated analyses that account for underemployment, ROI variations, and opportunity costs.
If you’re an employer: Examine whether your degree requirements align with job performance or simply reflect hiring convenience. You might be missing great talent while contributing to credential inflation.
If you are the Federal Reserve: Allow disparate voices to challenge your publications. Liberty Street Economics does allow comments, and I understand that spam could be a problem, but valid disagreements should be published.
The Bottom Line
The Federal Reserve case ultimately demonstrates that expertise without humility becomes a limitation rather than an asset. Sometimes, the most important questions come from outsiders asking “naive” questions that challenge fundamental assumptions.
The $1.7 trillion student loan debt is a blind spot, or, at best, is tackled politically rather than strategically.
As someone who serves on a college fund board while working independently of government or academic institutions, I have both the freedom and responsibility to ask uncomfortable questions that insiders might find difficult to voice.
The human cost of missed insights, whether measured in misdirected educational investments, ineffective policies, or limited opportunities for workers, makes this intellectual blind spot impossible to ignore.
We can do better. We must demand better data, ask more probing questions, and recognize that even our most trusted institutions can miss critical insights when they operate within unchallenged assumptions about what matters most.
The wisest institutions create systematic ways to ensure contrarian voices are heard and their insights integrated into decisions that affect millions of lives.
The Federal Reserve researchers’ $1.7 trillion blind spot suggests that transformative insights often come not from sophisticated new research methods, but from examining familiar data through fresh analytical lenses that challenge institutional assumptions.
It’s time we started looking.
UPDATE: After emailing the editors of Liberty Street Economics, I received a response on October 8th from the Federal Reserve that my comment indeed did not violate any standards and has been published. That’s great news, and I hope it means they will do a better job of allowing diverse views and comments on these important issues!
Reference Sources
- Rajashri Chakrabarti, Thu Pham, Beckett Pierce and Maxim Pinkovskiy, “The College Economy: Educational Differences in Labor Market Outcomes,” Liberty Street Economics, May 15, 2025. https://libertystreeteconomics.newyorkfed.org/2025/05/the-college-economy-educational-differences-in-labor-market-outcomes/
- Federal Reserve Bank of New York, The Labor Market for Recent College Graduates. https://www.newyorkfed.org/research/college-labor-market#–:explore:unemployment Figures quoted are from the release of April 22, 2025 (2025:Q1 data). The Fed has since revised the series.
- Jaison R. Abel and Richard Deitz, “When College Might Not Be Worth It,” Liberty Street Economics, April 16, 2025. https://libertystreeteconomics.newyorkfed.org/2025/04/when-college-might-not-be-worth-it/
- Jaison R. Abel and Richard Deitz, “Is College Still Worth It?,” Liberty Street Economics, April 16, 2025. https://libertystreeteconomics.newyorkfed.org/2025/04/is-college-still-worth-it/
- Federal Student Aid, Federal Student Aid Portfolio Summary (outstanding federal student loans, $1,660.7 billion at March 31, 2025). https://studentaid.gov/sites/default/files/fsawg/datacenter/library/PortfolioSummary.xls
- Joseph B. Fuller, Manjari Raman et al., Dismissed by Degrees (Accenture, Grads of Life and Harvard Business School, October 2017). https://www.hbs.edu/ris/Publication%20Files/dismissed-by-degrees_707b3f0e-a772-40b7-8f77-aed4a16016cc.pdf
The blind spot in this piece is the one I went on to write a whole book about. For the median graduate, a four-year degree now leaves you behind a high school graduate, by about $82,000 at the full cost of attendance and about $17,500 at net price, once you count forgone wages, taxes, and the cost of the degree itself. I lay out the full case in Is College Worth It? and in the book, We Need To Talk About Higher Education.