“Annual household income” is a key metric used to determine students’ financial aid, such as scholarships, grants, and loans, but that number on its own “masks deep and persistent inequities in wealth by race or ethnicity,” says a new report from the Institute for Higher Education Policy (IHEP). The report, Breaking the Cycle of Racial Wealth Inequities in Higher Education Outcomes, analyzes the cyclical relationship between a person’s wealth (or net worth) and their postsecondary experiences. Its findings indicate that students’ wealth status is a more holistic measure of their ability to pay for college, whether they take out student loans (a kind of negative wealth), and how they are able to accumulate wealth after college, especially for students from historically underrepresented groups.
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Although there are profound income disparities by race and ethnicity, the racial wealth gap is even greater. In its comparison of income and wealth, the report finds that the annual median income for white households ($84,500) is nearly twice as large as that of Black households ($43,800), but the median wealth of white households ($52,000) is 13 times larger than Black household wealth ($4,000), according to IHEP’s analysis.
“This gap, which is rooted in generations of discrimination and systemic barriers to opportunity, affects the college dreams of countless people, particularly those from historically marginalized communities,” the report explains.
Wealth’s impact on college access, affordability
Students’ wealth status can affect their college experience in various ways, from how much they have saved for their college education to how likely they are to enroll. People who receive a wealth transfer of at least $10,000 from their parents or grandparents are nearly twice (1.7 times) as likely to save for their children’s college education than those who do not. The racial difference in wealth distribution “may contribute to racial gaps in college affordability and access,” the report says. Among white households, income is a better indicator of college enrollment than wealth, but for Latine households, wealth is a stronger indicator. Black households have a similar likelihood of enrollment when considering wealth or income.
Closing wealth and income gaps would be a significant step toward increasing college attendance rates among historically underrepresented groups, but financial obstacles are not the only barrier to college attendance, the report notes. Among the highest-income, highest-wealth households, Black Americans are the least likely to attend college at 79%, while white Americans are the most likely at 92%. Among respondents from the highest-income, highest-wealth households, less than half of Black (39%) and Latine (46%) respondents completed a college degree.
Breaking the cycle
To increase college enrollment among all students, the report recommends colleges design recruitment, admissions, and enrollment policies that increase college access for low-income students. Colleges can also aim to boost college completion rates through a combination of financial and nonfinancial strategies, such as increasing wraparound supports that address completion disparities by wealth, improving college credit transferability, fostering a sense of student belonging, and considering whether to include wealth in need-based financial aid. Policymakers should also increase state and federal investments in chronically underfunded Historically Black College and Universities (HBCUs) and Minority-Serving Institutions (MSIs) so they can serve more students of color, especially those from low-income and low-wealth backgrounds.