A new report by the Federal Reserve Bank of St. Louis asks the question “does getting a college degree really help blacks and Hispanics economically?” The answer, unfortunately, is “not that much” if you look at their ability to accumulate wealth.
There’s little doubt that getting a college degree improves the earnings outlook for students of all races. According to The New York Times, economists have repeatedly shown that over a lifetime, incomes of college grads – white, black, Hispanic or otherwise – are almost double that of non-degree holders of the same race.
The Gap Remains
But when you look at whether or not a college degree helps erase the wealth gap between white and Asian college grads on one hand and black and Hispanic grads on the other, the picture isn’t pretty.
There are two key reasons. First, the recent downturns in the housing market have caused an inordinate amount of havoc for black and Hispanic families. Because they tend to inherit less money than white students, they borrow far more heavily to buy homes. And borrowing heavily for a home means, in many cases, that they have no money left over to invest in stocks, retirement accounts or other assets.
The result: any pullback in the housing market has a devastating effect on their family wealth. And while it’s not stated explicitly in the Fed’s report, one can presume that because of they live in segregated neighborhoods, blacks and Hispanics who need to sell their homes must try to sell to other members of their race suffering the same problems. Two facts in the report support that theory: When the housing bubble burst in 2008, homes owned by white college grads fell an average of 25%, while those owned by black or Hispanic degree holders fell about 50%. And from 2007 to 2013, Hispanic college grads saw their net worth fall an amazing 72 per cent, a clear indication that they were hit harder by the housing meltdown and have benefited less from recovery that’s occurred since 2008 than white degree holders.
According to the writers of the report, a key lesson is that you should not borrow too much to buy a house. Going into too much debt to get your piece of the American dream – and putting too great a percentage of your net worth into real estate only – can actually destroy your overall family wealth in the long run.
Another finding of the report is less surprising: Blacks and Latinos suffer from persistent hiring discrimination and tend to be paid less than whites or Asians. Several research projects, according to The Times, have shown that if two identical resumes are send in with a job application, the resume that has a “black sounding name” will consistently result in fewer callbacks than one with a white-sounding name.