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  • Writer's pictureJames Veal

Can Black College-Graduates Solve America’s Racial Wealth Gap?

According to a new research, education is not a solution for the racial gap in America. Wow! That is a punch in the gut right there.

On average, black families in the U.S. have just 5 to 10 percent as much wealth as white families do. A recent study showed that black households headed by a college graduate have roughly one-third less wealth than white households headed by a high school dropout. Yet for decades, many people have argued for the power of education to lift people out of poverty, raise incomes, build wealth, and close the racial wealth gap. So, are they saying the effects of education aren't powerful enough to close this country’s racial wealth gap?

A few years ago, The Federal Reserve Bank of St. Louis Review reported that researchers decided to dig deeper into this question and determined that over time, college degrees contribute to wealth accumulation for white graduates-but not black graduates.

Getting a college degree is seen as a building block of the American Dream. I definitely thought so. In fact, people from all across the world matriculate to colleges and universities in America in hopes of a great education and a high-paying job. The public and academic understanding - even for Blacks - has been that if you get an education, you have a better chance of narrowing this wide racial wealth gap. But in most cases, that is simply not true for blacks.

While it is true that getting an education will improve your chances of attaining greater wealth, it is not true that education equalizes across race. The researchers looked at wealth outcomes for black and white families nationally. Even among white and black college-educated couples with similar earnings, however, differences in wealth make it easier for a white family to opt to have a stay-at-home spouse. That’s because wealth — home equity, savings, investments — provides a cushion to fall back on. At every income level, black households possess only a small fraction of the net worth of white households. In black families whose head of household had a college degree, median net worth is only one-eighth that of comparable white families — $23,400 versus $180,500.

What is actually happening here is that there are are some costs to getting a college education for African Americans that don’t exist for white families. Black college graduates hold more overall debt than white college graduates, despite their lower incomes. The average overall debt of Black college graduates is almost $40,000, over $6,000 more than white college graduates and almost $3,000 more than white households without a high school diploma. Black students are more likely to take student loans and more likely to take larger student loans than white students.

This has to do with family wealth. White households are more likely to have enough to pay for part or all of their child’s college tuition, sparing them the burden of student loan debt. Although this makes financial sense for some households, most Black families simply cannot not afford to do this.

The study also found that white college-educated households were more likely to give money to their children (to pay for college, for example, or to put a down payment on a home)-and more able to give larger amounts.

Black families, even college-educated black families, rarely get a transformative asset, a chunk of money that enables them to pay off student loans, purchase a house, or move to a better neighborhood to send their kids to a better school. For white families, that’s much more common.

Wealth is like glue. Meaning, once you have it, it really sticks with the family. It puts family members in a much better position financially going forward. The way wealth is distributed in the U.S., it replicates with each generation. It is linked to the way people think and the behavior of their families and networks. Many Blacks never had family members talk to them about building wealth.

So, what is the answer to solving the racial wealth gap? Well, if it’s not through education, then what? The study admits that there is no simple answer. Changes to the tax code, stipends, and higher Pell Grants may help but reducing the racial wealth gap likely requires actual, radical solutions for wealth redistribution. I believe the best choice to close the wealth gap in America is entrepreneurship. Blacks have to create, operate and manage their own businesses and then pass them on to the next generation.

Wealth has momentum, and if you have it, even a little bit, families can ride this wave generationally - but without it, it can be a struggle and unfortunately, black college-graduates are a living proof.

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