Fed study: degrees didn't protect blacks, Latinos from downturn
As the 2016 presidential contenders eagerly vie for the youth vote with promises to expand and further subsidize higher education, a new study claims that a degree is no guarantee of financial stability, at least for African-Americans and Latinos.
The report released this month by the Federal Reserve Bank of St. Louis poses the question, “Why didn’t higher education protect Hispanic and black wealth?” in response to the finding that college graduates in those communities experienced far greater economic declines during the recent recession than did those without a college degree.
Among Hispanics, the median net worth of college graduates fell 71.9 percent between 2007 and 2013, while non-grads lost 41.2 percent over the same period. For blacks, the figures are 59.7 percent and 37.3 percent, respectively.
Black and Latino graduates also fared worse than their white and Asian counterparts during the recession, with the median net worth of white grads falling 16 percent and that of Asian grads actually rising by 5.1 percent.
The unusual findings prompted the authors to examine the same trends over a longer time period, co-author Bill Emmons told NPR last week; when they extended their analysis back to 1992, the results were even more striking.
Over the course of that 21-year stretch, which encompasses the prosperous 90’s as well as the relative stagnation of more-recent decades, the median real income of Hispanic grads decreased 10 percent, while that of black grads fell 12.1 percent, coinciding with an even steeper drop in wealth, their median net worth, for both groups (27.4 percent and 55.6 percent, respectively).
Simultaneously, the income of non-degree-holding blacks increased 17.3 percent and Latinos without degrees saw their income grow by 15.6 percent.
During the same period, degree-holding whites saw their incomes increase by 18 percent and Asian grads boosted their incomes by a whopping 30.9 percent, while those without college degrees gained 4.6 percent and lost 9.2 percent, respectively.
Emmons stresses that the study’s findings do not constitute a refutation of the conventional wisdom that a college education is economically beneficial, telling NPR that, “Hispanic and black college graduate families … still have wealth that are multiples of non-college families, so the message is not that college is wrong.”
Indeed, Emmons and his co-author Bryan Noeth calculate that in 2013, black families with a four-year college degree had a median income twice that of their non-college-educated peers, and a median net worth that was 3.6 times higher. The impact was even greater for Hispanic graduates, who enjoyed a median income 2.2 times higher than non-graduates and a median net worth that was 4.1 times greater.
Although “[t]he underlying factors causing racial and ethnic wealth disparities undoubtedly are complex and deeply rooted,” the authors assert that their evidence “suggests that college degrees alone do not provide short-term wealth protection, nor do they guarantee long-term wealth accumulation.”
While conceding that “further research is needed,” the authors do offer several hypotheses in an attempt to explain the disparate effects of a college education for different racial groups.
One possible explanation, which goes beyond the study’s scope, is that whites and Asians are more likely to have advanced degrees in addition to a bachelor’s degree, which significantly boosts their earning power and further insulates them from economic downturns.
In a similar vein, Emmons told National Journal that white and Asian students might benefit from better financial literacy than black and Latino students typically demonstrate, because they are more likely to have college-educated parents who can pass on “financial habits or awareness.”
Another possibility, Emmons and Noeth submit, is that the families of black and Hispanic college graduates suffered disproportionately during the recession because not only did they have much greater debt burdens than white and Asian families, they also had a larger proportion of that debt tied up in residential real estate at the time of the housing collapse.
William Darity, a professor of public policy at the Samuel DuBois Cook Center on Social Equity at Duke University, told NPR that he generally agrees with the conclusions reached by Emmons and Noeth, saying their study provides further evidence that higher education alone “is not the avenue to close the racial wealth gap.”
Others argue that the Fed study highlights the need for government to play a greater role in higher education, saying student loan debt likely also contributed to the financial vulnerability of college-educated African-Americans and Hispanics, according to The New York Times.
“How you finance an asset is just as important as the asset itself,” said Ray Boshara, director of the Center for Household Financial Stability at the St. Louis Fed, adding that narrowing the racial wealth gap would require policy changes to reduce the amount of debt low-income students must take on in order to attend a high quality school.
Yet Neal McCluskey, director of the libertarian Cato Institute’s Center for Educational Freedom, told Campus Reform that simply socializing the cost of higher education would do little to address the fundamental issue of disparate outcomes.
“African-Americans and Hispanics are often less well-prepared to go to college,” he said. “This is partly a K-12 problem, there’s probably a cultural component…there’s all sorts of stuff that factors into it.
“The solution isn’t to say that we should pile even more money into public colleges and universities, because then what you’re doing is pawning off all the cost onto taxpayers, and you would still have people with worse workforce outcomes,” he continued. “Public financing would certainly decrease the debt, but it would not improve the educational outcomes for these groups.”
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