The American dream has long been intertwined with higher education. Get a degree, the thinking went, and you'll have job security that those without one could never match. But new research from the Cleveland Federal Reserve is forcing economists and families alike to reconsider that calculus.

The unemployment gap between college graduates and high school graduates in their twenties has narrowed to its smallest margin since the late 1970s. In July 2025, the 12-month average unemployment rate for young college graduates stood only 2.5 percentage points lower than their peers without a postsecondary degree—just barely above the record low of 2.4 percentage points set in March 2024.

What's Driving the Convergence?

Several factors are contributing to this historic shift in labor market dynamics:

  • Skilled trades renaissance: Electricians, plumbers, and HVAC technicians are commanding premium wages as infrastructure spending and housing construction boom, while white-collar job growth has slowed
  • AI disruption of entry-level roles: Many traditional college-graduate entry points—research analyst positions, junior legal work, basic programming—are being automated or augmented by artificial intelligence
  • Credential inflation: As more workers hold degrees, the competitive advantage has diminished in many fields
  • Post-pandemic labor market tightness: Across-the-board worker shortages have lifted wages and reduced unemployment for workers at all education levels

The Numbers Tell a Striking Story

The data from the New York Federal Reserve's analysis of recent college graduates paints a challenging picture. Labor market conditions remained difficult through the third quarter of 2025, with the unemployment rate for recent graduates averaging 5.3 percent—more than double the 2.5 percent rate for all college graduates aged 25 and older.

Perhaps more concerning is the underemployment rate, which rose to 41.8 percent in Q3 2025—its highest level since the pandemic disruption of 2020. This means that nearly half of recent college graduates are working in jobs that don't typically require a bachelor's degree.

"Job-finding rates among recent college graduates have been declining, narrowing the unemployment gap between high school and college graduates. Poor job market outcomes early in life can translate into persistent earnings shortfalls over the course of a career."

— Cleveland Federal Reserve Economic Commentary

The Earnings Premium Endures—For Now

Despite the narrowing unemployment gap, the earnings premium for college graduates remains substantial. According to Bureau of Labor Statistics data, median annual earnings for bachelor's degree holders are approximately $40,500—or 86 percent—higher than those whose highest credential is a high school diploma.

This earnings gap continues to widen over the course of a career, as degree holders advance into higher-paying roles with more opportunity for salary growth. But economists caution that today's labor market conditions may not persist indefinitely.

What This Means for Families Weighing College Costs

With the average cost of a four-year degree exceeding $100,000 at many institutions—and student loan debt nationwide surpassing $1.7 trillion—families are increasingly scrutinizing the return on investment.

The calculation isn't simply whether college "pays off" in the abstract. It depends heavily on:

  • Field of study: STEM and healthcare degrees continue to show strong employment outcomes, while some liberal arts fields face tougher job markets
  • Institution selectivity: Graduates from highly ranked universities still see significant employment advantages
  • Geographic flexibility: Willingness to relocate dramatically expands employment options
  • Debt levels: Students who graduate with minimal debt face far less financial pressure to find high-paying work immediately

The Trade School Alternative

For some young Americans, skilled trades offer a compelling alternative. Electricians, plumbers, and other tradespeople can earn six-figure incomes without the burden of student loans, often completing their training through paid apprenticeship programs.

The Bureau of Labor Statistics projects strong growth in many trade occupations through 2032, driven by infrastructure investment, an aging workforce, and the electrification of transportation and buildings.

What Employers Are Saying

Major employers including Google, Apple, IBM, and Bank of America have dropped degree requirements for many positions in recent years, focusing instead on skills and demonstrated ability. This shift reflects a broader recognition that a degree is neither a guarantee of competence nor a prerequisite for it.

However, many competitive employers still use degrees as a screening mechanism, particularly for roles with large applicant pools. The degree requirement may be less about the education itself and more about the demonstrated ability to complete a long-term commitment.

Looking Forward: Advice for Current Students and Job Seekers

For those currently in college or considering enrollment, experts recommend:

  • Prioritize internships and work experience: Practical experience increasingly matters more than GPA in hiring decisions
  • Build specific, marketable skills: Whether it's data analysis, programming, or project management, tangible skills outweigh generic credentials
  • Consider total cost: A degree from a respected state school with minimal debt may produce better lifetime outcomes than an elite private school with heavy borrowing
  • Stay adaptable: The jobs that exist when you graduate may differ significantly from those available when you enrolled

The college premium isn't dead—not by a long shot. But its automatic nature has faded. For today's workers, education is just one component of a much more complex equation that includes skills, experience, adaptability, and timing. The workers who thrive will be those who view their degree not as a finish line but as one tool in a much larger toolkit.