New St. Louis Fed Analysis Shows College Inadvertently Increases Racial and Ethnic Disparity in Income and Wealth

3/3/2017

ST. LOUIS ― Despite generations of generally rising college-graduation rates, higher education’s promise of significantly reducing income and wealth disparities across all races and ethnicities remains largely unfulfilled, according to a new In the Balance report from the St. Louis Fed’s Center for Household Financial Stability.

In “College Inadvertently Increases Racial and Ethnic Disparity in Income and Wealth,” authors William Emmons and Lowell Ricketts show that, while recent research has found that college can successfully ‘level the playing field’ for students across different socioeconomic backgrounds when approximated with family income, higher education does not appear to overcome an individual’s race or ethnicity as a predictor of success. 

Emmons and Ricketts found that, while notable progress is evident among Asian-Americans, shortfalls remain among Hispanics and blacks in both the quantity and the effectiveness, or quality, of postsecondary degrees. Together, these gaps point toward widening income and wealth disparities in the future. “Growing gaps in college-attainment rates, together with large differences in the economic and financial returns associated with any given level of education, suggest that racial and ethnic income and wealth gaps are likely to grow larger in the future,” Emmons and Ricketts said.  

The authors brought together U.S. Census Bureau data on trends in educational attainment with wealth data from the Federal Reserve’s Survey of Consumer Finances to project growing wealth disparities in the future. Long-standing racial and ethnic education and wealth gaps are widely recognized. What might be less well known is that college-attainment rates of Hispanics and blacks are falling further behind those of whites and Asians and that racial and ethnic wealth gaps are large even within the ranks of college graduates.

The authors stressed that more education generally pays off for all racial and ethnic groups, even if the relative payoffs differ. However, they said these findings do require facing up to two uncomfortable facts.

“First, successive generations of Hispanics and blacks are falling further behind their white and Asian counterparts in obtaining four-year college degrees. Second, the payoffs for increasing levels of education obtained by Hispanics and blacks generally are lower than those for whites and Asians,” they said. “As a consequence of these quantity and quality gaps, higher education unintentionally has become an engine for widening disparities rather than for accelerating the convergence of economic and financial opportunities across races and ethnicities.”

For more information, visit the Center for Household Financial Stability (HFS).