Everyone says a college degree is the path to prosperity.
For White and Asian families, that's largely still true. Higher education not only brings with it better pay and more stability; it also creates a buffer against the negative effects of recessions and other short- and long-term economic pitfalls.
But for Blacks and Latinos, a college degree doesn't have the same protective power.
That is the blunt conclusion from a new report by the Federal Reserve Bank of St. Louis. In fact, the Fed found that Blacks and Latinos with degrees lost wealth at higher rates during the recession and accumulated wealth at smaller rates over the last couple of decades than Blacks and Latinos without degrees. Meanwhile, Asian and White families led by a person with a four-year degree weathered the recession better and accumulated more money long-term than White and Asian families headed by a person without a degree.
The numbers paint a stark picture. Median wealth declined by 72 percent among Latino college-educated families, the report found, but only by 41 percent among noncollege-educated Latino families between 2007 and 2013. Among blacks, the figures were 60 percent versus 37 percent. Asian families headed by a degree-holder actually gained wealth during this time, while White families led by a degree-holder saw declines of just 16 percent.
All Degrees Are Not Equal
In other words, the report found that higher education does not safeguard the wealth of all groups equally.
There are a few things going on.
One factor is that Latino and African-American families are less likely to have diversified assets and more likely to have more of their wealth concentrated in housing. As the report notes, Latino and Black homeowners were hit with more steeply declining home prices than White and Asian families. The average value of owner-occupied homes among college-educated Latino and Black families declined 45 percent and 51 percent between 2007 and 2013.
That figure was only 25 percent for Whites and the home value for Asian families actually increased 6 percent during that time. So, not only were Blacks and Latinos hit harder, but a larger share of their wealth was impacted. And while many people saw their stocks rebound, many Blacks and Latinos are still underwater on their houses. According to a report from the Haas Institute for a Fair and Inclusive Society at the University of California at Berkeley, 9.8 million households remained underwater as of 2014, and African-Americans and Latinos accounted for at least 40 percent of the population in 71 of the 100 hardest-hit cities with populations over 100,000.
Evidence suggests that highly educated blacks and Latinos, along with Whites and Asians, earn more overall and have more wealth overall than their noncollege-educated peers.
While the report focuses on mortgage debt, Antoinette Flores, a policy analyst on the left-leaning Center for American Progress's Postsecondary Education Policy team, suspects student loans have also had a negative impact.
"I think we really need to address college affordability, particularly for low-income students," she said. The center has backed reducing student-loan interest rates and waiving tuition and fees for some public-college students.
William Emmons, one of the report's authors, doesn't disagree. Student loans are a "growing issue," he said, pointing to a report by the New York Federal Reserve that suggests student loans may hamper homeownership among borrowers with a lot of debt. But more research into the impact of student loans needs to be conducted, he said, to understand their long-term impact.
Another issue is that Whites and Asians, the report notes, are also more likely to have advanced degrees, which tend to mean higher earnings. Emmons added that they are also more likely to attend competitive universities that may offer more help with job placement and to choose high-return majors in the science and engineering fields.
Ultimately, though, much of the disparity may come down to the fact that Whites and Asians are more likely to have generational financial know-how and wealth built up, which is something that happens over a long period of time. They have a safety net whereas Blacks and Latinos do not.
"As a starting point, there's a lot less money in the pockets and in the savings accounts of Black and Latino families," said Lindsay Daniels, associate director of the Wealth Building Initiative at the National Council of La Raza, a Latino-advocacy organization.
As Michael Madowitz, an economist with the Center for American Progress, said, "There are things you can do with wealth that you can't do with income."
With wealth, you can invest. If your income only supports your family paycheck-to-paycheck, that's not an option. Lose your job and you lose your income, but not necessarily your wealth. If you have money saved and invested, you're better equipped to handle a temporary loss of income because you have assets that can be liquidated or savings from which to draw.
It Starts With Financial Education
So one important question remains: Why is there less wealth among these families, particularly if the study looked specifically at college graduates?
Kids growing up in White and Asian families are more likely to have college-educated parents, who may be more likely to possess and transfer smart financial decision-making skills to their children.
While Emmons, one of the authors, said it's difficult to show "in a systematic way" exactly how much family wealth itself is a factor, he acknowledged that these families may pass on their "financial habits or awareness" to their kids. "There may be an argument that colleges should have simple financial literacy as part of the curriculum," Madowitz said.
Right now, we don't really talk to young people, at least formally, about putting money into things like a variable annuity or index fund, Madowitz added. Many people, he continued, focus on paying down their mortgage when it might make sense to take some of the money and invest it elsewhere.
Emmons disagrees. "I advise people, pay off your debt first," he said. Regardless, more financial education, like a college degree broadly, won't fix everything.
Citing Donald Trump, Madowitz said the real-estate mogul and presidential hopeful provides a "useful vignette" for looking at the issue. Sure, he deserves some credit for figuring out the real-estate game, but his father was also a real-estate developer and he grew up in the business.
Overcoming Inherent Bias
People who are the first in their families to graduate from college, particularly those from more of a "rags to riches" background, don't have the same leg up. Blatant discrimination and structural barriers also play a role and are also difficult to overcome.
"There's something going on with race, ethnicity, gender, and class. ... These are the secrets Americans like to keep from themselves." —Anthony Carnevale, director, Center on Education and the Workforce
Once things like type of degree, the school attended, and a host of other factors are accounted for, there remains a residual factor, Anthony Carnevale, director of Georgetown University's Center on Education and the Workforce, said, and it's tied to discrimination.
"There's something going on with race, ethnicity, gender, and class," he said. "These are the secrets Americans like to keep from themselves."
Companies like Wells Fargo have paid millions to settle claims that they charged African-Americans and Latinos higher fees for mortgages. Studies have shown that when given two equally qualified candidates, hiring managers are more likely to choose the person with a White-sounding name over a Black- or Latino-sounding one.
Such factors, particularly largely intangible issues like discrimination, are difficult to overcome. "Discrimination is more of a statistical phenomenon than a personal one," Carnevale said.
When you look at specific cases, bias might be subtle, he said, but discriminatory hiring patterns emerge when you look at larger data sets. Yet it's difficult to address the issue in courts, because the focus tends to be on individual cases, which are hard to prove. Affirmative action, he said, would help, but broad public support is lacking.
None of this is to say, Emmons was careful to point out and Flores and Daniels were quick to highlight, that college is not worth it.
Evidence suggests that highly educated Blacks and Latinos, along with Whites and Asians, earn more overall and have more wealth overall than their noncollege-educated peers.
"We're not saying education is bad or college is a bad idea for a typical student," Emmons said, "but the stakes have been increased."
"In the long run," Flores, the Center for American Progress analyst said, "a college degree is going to improve earnings and it's going to improve net worth."
So higher education still makes a lot of sense. There's just no guarantee, particularly for Blacks and Latinos, that the income a degree helps generate will translate into either the short-term or long-term wealth that protects families when they are hit with economic hardship. Discrimination and other factors remain firmly in the way.