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DEGREES OF INEQUALITY

Study: College-educated blacks and hispanics lost more than half their net worth in the financial crisis

Graduates are seated during George Washington University's 2015 commencement exercises in Washington, DC.
AP Photo/Alex Brandon
Define “adventure.”
By Melvin Backman
Published Last updated This article is more than 2 years old.

You’d think getting a college degree would lead to the kind of wealth-building that would allow people to weather the storms of financial crises, both micro and macro. But a new report shows that’s not the case for everybody.

From 2007 through 2013, the typical black and hispanic households in the US headed by people with four-year college degrees lost more than half their net worth. That was not only much worse than similarly educated white and Asian households, but even blacks and hispanics without degrees, according to a recently released report from the Federal Reserve Bank of St. Louis, titled “Why Didn’t Education Protect Hispanic and Black Wealth?”

“College is not playing the same role for those families as others,” William Emmons, who authored the paper with Bryan Noeth, told Quartz.

The researchers, who used Survey of Consumer Finances data, found that black and hispanic finances were in much rougher shape before the financial crisis, leaving them more exposed to disruption. For example, they had lower cash reserves, little asset diversification, and higher debt-to-income levels than their white and Asian peers.

The findings are consistent with previous research that has shown, at least among black families, household wealth tends to be more concentrated in the home (with the attendant mortgage debt) than assets like stocks and bonds. A Washington Post series on the foreclosure crisis in Prince George’s County, Maryland, showed how destructive that combination could be.

Emmons told Quartz that, as in Prince George’s, the kinds of higher-income (and likely better-educated) black and hispanic families who had degrees were disproportionately given more expensive subprime loans that made it harder for them to pay down mortgage debt and build up equity in their homes. Indeed, thanks to housing segregation, the typical middle-class black family lives in neighborhoods with lower incomes than the typical low-income white family (paywall). And when black and hispanic families are roped off in segregated neighborhoods, subprime-loan targeting gets even worse.

On top of that, the payoff from the investment in a college degree is lower for blacks and hispanic Americans, making it even more difficult to build the wealth needed to protect against a downturn.

As for solutions, Emmons pointed to maintaining sound financial health, rather than addressing underlying structural forces at play.

“That would be the least controversial thing that we could say with our data: That young families with lots of financial vulnerability should avoid getting into debt.”

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