Are Student Loans Contributing to Racial Wealth Gaps?

July 30, 2018

black white wealth gap
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Wealth gaps between black and white families have been well documented. A recent issue of In the Balance explored how these existing gaps may manifest themselves in higher education financing.

In the analysis, Fenaba Addo, a visiting scholar with the St. Louis Fed’s Center for Household Financial Stability, explained that family income primarily determines financial aid decisions and that family wealth plays an important role in discharging student debt.

“Therefore, existing racial wealth disparities and soaring higher education costs may actually replicate racial wealth disparities across generations by driving racial disparities in student loan debt load and repayment,” she noted.

Ability to Pay for College

Addo noted that the average net wealth of college-educated blacks is about one-tenth that of whites. Thus, white families are in a better position to pay for college.

Indeed, the author cited a youth survey showing that 58 percent of black young adults received an average of $4,200 from their parents, compared with an average of $12,000 given by 72 percent of white families. The same survey reported that college-educated white young adults had about $17,000 more wealth than black young adults who attended college.Data are from the 1997 cohort of the National Longitudinal Survey of Youth.

Finances by Race
Student Loan Debt
Full Sample White Black
Young Adult Has Debt 41% 41% 45%
Average Debt among Holders $22,051 $21,956 $19,654
Young Adult Status at Age 25
Net Worth $32,149 $37,182 $20,186
Parent Contributed to College Cost 69% 72% 58%
Total Parent Contribution over College Career $10,384 $11,679 $4,217
Parents' Wealth
Net Worth $149,842 $174,871 $48,494
Median $73,333 $101,377 $9,498
NOTES: Dollar figures are rounded to the nearest dollar. The number of white young adults responding was 3,258, and the number of black young adults responding was 1,244. All averages are statistically different at the 5 percent level by race, indicating that the differences are not a result of random chance. The figure for the average debt among holders for the full sample includes groups other than black and white young adults.
SOURCES: 1997 cohort of the National Longitudinal Survey of Youth and author's analysis.
Federal Reserve Bank of St. Louis

Addo calculated that a $10,000 increase in young adult net wealth is associated with 7.6 percent less student loan debt. “Young adults with high net wealth may have benefited from transfers of wealth from their parents and subsequently may be in a better position to pay down their student loans quicker,” Addo wrote.


Addo concluded that the current generation of young adults may not be able to automatically assume the same social class standing as their parents. She noted that this was especially true for black young adults coming from middle-class and higher net wealth households.

“They, like their parents’ and grandparents’ generations, might find their pathway to middle-class status, financial security, and stability to be a tenuous one,” Addo wrote. “If student loan debt is more burdensome and consequential for black young adults, one of the unintended consequences of rising college costs may be that the long unstable and fragile position of the black middle class will persist.”

Notes and References

1 Data are from the 1997 cohort of the National Longitudinal Survey of Youth.

Additional Resources

This blog offers commentary, analysis and data from our economists and experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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