Sub-prime Crisis Threatens Black College Access

Wealth-building is the cornerstone of true upward mobility in the United States. When I speak of true upward mobility, I mean the type of financial security that can be transferred to future generations. When I speak of true upward mobility, I mean the type of upward mobility that is characterized by the transmission of the parents’ economic gains to their children  and their children’s children. When I speak of true upward mobility, I mean the type of financial security that has, for the most part, been elusive to African Americans.

The 2/7/08 edition of the Journal of Blacks in Higher Education weekly news bulletin has confirmed one of my main concerns regarding the fallout of the subprime lending crisis, that the epidemic of foreclosures that has plagued the U.S. over the past year, one that has disproportionately impacted African Americans and Latinos, may jeopardize African Americans’ access to higher education. JBHE bulletin describes a recent study that explores the impact of the subprime crisis on African American wealthbuilding:

Now a new report from the United for a Fair Economy, a Boston-based nonprofit organization dealing with the issue of economic inequality, estimates that the subprime mortgage crisis [will] result in a loss of wealth for black families of between $71 billion and $122 billion. According to the report, titled Foreclosed: State of the Dream 2008, the subprime mortgage crisis will cause the largest loss of African-American wealth in the history of the United States. The authors of the report state that 40 percent of the losses accrued by blacks are a result of aggressive and unethical mortgage practices by subprime lenders.

JBHE concludes that, “This vast loss of wealth by black families will make it more difficult in the years to come for many African-American students to afford the cost of higher education.”

Which Black families will be hardest hit, and where? And what is the potential effect of this crisis on the future of Black higher education in those areas?

The disproportionate impact of the current mortgage crisis on Black families has influenced the geography of this trend. Consider the following. Forbes magazine recently identified the following as the 10 housing markets hit hardest by the current mortgage crisis. In order of ascending order, based on the severity of the impact on housing prices, they are:

Atlanta, GA (prices down 7.1%)

Detroit, MI (prices down 7.7%)

Jacksonville, FL (prices down 8.7%)

Phoenix, AZ (prices down 9.5%)

Miami, FL (prices down 10.6%)

Los Angeles, CA (prices down 10.7%)

Tampa, FL (prices down 11.7%)

San Diego, CA (prices down 17.1%)

Las Vegas, NV (prices down 17.2%)

Sacramento, CA (prices down 18.5%)

Most of the cities hit hardest by the subprime crises have considerable African American populations; and cities like Atlanta, Jacksonville, Detroit, and Sacramento count among their citizens Black families most whose net worth is concentrated in a single real estate holding, the family home. The loss of that home has the capacity not only to destabilize the immediately financial health of a household, but to derail short- and long-term plans for upward mobility and increased economic prospects. Among those long-term strategies jeopardized by the loss of a family’s primary investment (the family home) is college education for the children.

Consider the state of Florida, for example, the location of three of the cities hit hardest by the current forclosure crisis. Each of those cities has a considerable Black populations. According to the U.S. Census, African Americans make up 26.1 percent of the population of Tampa (about 79,000 people), 29 percent of the population of Jacksonville (about 227,000), and 20.2% of the population of Miami (about 485,000). The number of Florida families impacted by this crisis is unclear, as is the specific number of Black families. It is reasonable, however, to imagine that Black college students and Black college bound high school students will be (and already are) disproportionately hurt by the current economic conditions.

It has already been established that the subprime and foreclosure crisis is having a disproportionate impact of families of color. Given that home equity is one of the more common funding options available to familites seeking to finance a college education (like federal student loans, the interest is deductible, but unlike a student loan, there is no income ceiling; students from middle and even upper middle class families have access to this type of financing), we can expect to see greater and greater numbers of Black students either postponing college or opting to begin their post-secondary educations at their local community college. Similarly, we are likely to see greater attrition rates among students from the Black middle class, the demographic most likely to rely on home equity funding for college expenses.

A number of sources have reported that children born into the Black middle class are considerably less likely to reach their parents’ level of prosperity than are their white counterparts. Reports on Black downward mobility have appeared in USA Today, AlterNet, The Washington Post, and a number of other mainstream and alternative news sources. “The American Dream, or a Nightmare for Black Americans,” a recent article by AlterNet’s Joshua Holland, makes explicit the relationship between Black upward mobility, Black net worth, and higher education. He explains that when comparing Black and white families, “[t]he differences in accumulated wealth — in net worth — are far greater than the differences in income, and that impacts black families’ prospects of moving up in a big way.” Holland continues:

In Being Black, Living in the Red, Dalton Conley, director of NYU’s Center for Advanced Social Science Research, showed that white families, on average, had eight times the accumulated wealth of black families who earned the same, and that remained true even when you adjust for education levels and savings rates. It is, as Conley told me in an interview last year, “the legacy of racial inequality from generations past.”

Crucial to understanding how that impacts economic mobility is the concept of “intergenerational assistance.” That’s just a fancy way of saying that your chances to advance economically are very much impacted by whether your family can help with tuition payments, a down payment on a house or seed money to start a business. Conley compares two hypothetical kids — one from a family with some money and the other without. Both are born with the same level of intelligence, both are ambitious and both work hard in school. In a true meritocracy, the two would enjoy the same opportunity to get ahead. But the fact that one might graduate from college free and clear while the other is burdened with $50,000 in debt makes a huge difference in terms of their long-term earnings prospects.

Home equity allows parents to take on their children’s debt as part of a forward-thinking, tax-exempt strategy for upward mobility, one that considers the college education of a family’s children a key component in building intergenerational economic growth and financial security.

The current mortgage crisis will only increase this gap between white parents’ capacity to transmit wealth to their children through the funding of their college educations and Black parents’ capacity to do the same. In the case of Florida, I will be keeping an eye out for any initiatives that the state’s colleges and universities adopt to respond to the changing economic fortunes of those students impacted by their families’ short sales and foreclosures. I am especially interested in seeing how the state’s HBCUs –Bethune-Cookman, Florida A&M University, Edward Waters College, and Florida Memorial College– deal with the impact of this statewide financial crisis on their applicants and enrolled students.

Stay tuned.

Click here to read the full text of the 2/7/08 edition of the JBHE bulletin.

Click here to read the full text of the Forbes article, “America’s Free – Falling Housing Markets.

Posted by Ajuan Mance