Parents’ Wealth Helps Explain Racial Disparities in Student Loan Debt

March 29, 2018

The amount of educational loans that students of color are taking out to finance their higher education may be contributing to racial wealth gaps.

Federal financial aid decisions are primarily based on income, not wealth, and family wealth is an important resource for 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.

If today’s black young adults who attended college are the next generation of the black middle class, then they are not very different than their predecessors. They have made significant gains in educational attainment but don’t have the wealth profile to match. This disparity appears to stem from the educational debt acquired to pursue their education. College is an increasingly expensive investment for students and their families, who have had to shoulder a growing share of the college cost burden.

And while studies indicate that the lifetime earnings of those with a college degree continue to outpace those of individuals without,1 black students appear to be taking on a great deal more financial risk in pursuit of higher education. They tend to rely on student loans more than whites, have higher debt burdens, express more concern about the affordability of loan payments, and are more likely to default.2

Disparities in Transfers and Composition of Wealth Matter

Given that the average net wealth of college-educated blacks is less than a tenth that of whites,3 white families are better able to draw from their wealth to pay for college, transfer their wealth to their children, and protect their children from debt than are black families. The proportion of families who provide assistance and the average amounts that they are able to give also differ considerably. An analysis of data from a youth survey4 found that 58 percent of black young adults reported that their parents contributed an average of $4,200 over the course of their college career. That compares to an average of $12,000 given by 72 percent of white families. (See Table 1.)

By the Numbers

$4,200 Average amount parents of majority of black students contributed for college
$12,000 Average amount parents of majority of white students contributed for college
$17,000 Amount of greater wealth college-educated white young adults had compared to black young adults by age 25
7.6 percent Amount of decrease in student debt associated with $10,000 increase in young adult net wealth
3.2 percent Black parents in top wealth quintile

Black parents compose only 3.2 percent of the top wealth distribution quintile, defined as those holding at least $191,000. These families have substantially less home equity and only half as much in financial assets as white counterparts at similar points in the distributions. (See Table 2.) Parents at the high end of the black wealth distribution may be less able to transfer wealth to their children than are their white counterparts. This may be due in part to the black parents having fewer liquid assets, such as stocks, bonds and savings, which can be passed more easily to the next generation.

Racial Wealth Gaps Appear Early

As early as age 25, racial wealth gaps begin to emerge. In the age 25 asset survey,5 college-educated white young adults reported having approximately $17,000 more wealth than black young adults who had attended college. We 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.

This analysis suggests that social class positioning defined by familial wealth may not persist for this recent cohort of young adults, and especially not for black children 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. 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.

Table 1

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
Financial Assets $25,819 $31,001 $6,363
Home Equity $62,416 $72,866 $19,377
Retirement Accounts $41,387 $48,211 $13,279
Has College Saving Account (CSA) 10% 11% 6%
Amount among CSA Holders $38,776 $40,786 $27,068
Other Assets $8,385 $11,231 $4,092

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.

SOURCES: 1997 cohort of the National Longitudinal Survey of Youth and author’s analysis.

*Includes groups other than young white and young black adults.

Table 2

Average Holdings by Types of Wealth among Parents in the Highest Quintile

Holdings Average Amount ($)
White Black
Home Equity 154,627 92,555*
Retirement Accounts 116,960 91,915
Financial Assets 81,827 46,579
College Savings Account (CSA) 12,323 14,023
Other Assets 30,374 51,655

NOTES: Highest quintile includes those with $191,180-plus in wealth. The number of people responding was 1,069.

SOURCES: 1997 cohort of the National Longitudinal Survey of Youth and author’s analysis.

*Statistically different by race at the 5 percent level.


  1. See Jones and Schmitt. [back to text]
  2. See Jackson and Reynolds. [back to text]
  3. See Emmons and Noeth. [back to text]
  4. Data are from the 1997 cohort of the National Longitudinal Survey of Youth (NLSY97) The NLSY97 is an annual study following a representative sample of youth living in the U.S. who were 12 to 16 years old as of Dec. 31, 1996. The current analysis uses annual data from 1997-2011 and 2013. [back to text]
  5. Data from the NLSY97 Asset 25 section was collected in the interview year at the time or after the young people reached age 25. [back to text]


Addo, Fenaba R., Houle, Jason N., and Simon, Daniel. Young, Black, and (Still) in the Red: Parental Wealth, Race, and Student Loan Debt. Race and Social Problems, 2016, Vol. 8, Issue 1, pp. 64-76.

Emmons, William R. and Noeth, Bryan J. Why Didn’t Higher Education Protect Hispanic and Black Wealth? In The Balance: Perspectives on Household Balance Sheets, Federal Reserve Bank of St. Louis, 2015, Vol. 12.

Jackson, Brandon A., and Reynolds, John R. The Price of Opportunity: Race, Student Loan Debt, and College Achievement. Sociological Inquiry, May 2013, Vol. 83, pp. 335-68.

Jones, Janelle, and Schmitt, John. A College Degree is No Guarantee. Center for Economic and Policy Research (CEPR), May 2014.

About the Author
Fenaba Addo

Fenaba Addo is a visiting scholar with the Institute for Economic Equity at the Federal Reserve Bank of St. Louis.

Fenaba Addo

Fenaba Addo is a visiting scholar with the Institute for Economic Equity at the Federal Reserve Bank of St. Louis.

In the Balance are short essays related to research on understanding and strengthening the balance sheets of American households. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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