The median wealth of black families “is on a path to hit zero by 2053,” if current trends hold. So says a 2017 study published by the Institute of Policy Studies. Meaning, the black middle class will have zero net wealth (assets minus debt) if they don’t find another way to succeed and to reduce their debts. Some preach the gospel of college degrees as a means to build individual assets, but students on that path often end up saddled with debilitating debt. The anti-college crowd preaches entrepreneurialism, but without the social networks and technical skills that colleges provide, black students can’t connect with deep-pocketed investors who sponsor tech start-ups, which currently offer the fastest pathway to individual wealth.
Black students struggle to acquire wealth. And their choice of college majors shows that they want to earn a good living. About one-third of all black collegians earn degrees in either a STEM-related (science, technology, engineering and math) field or in business, according to my analysis of integrated post-secondary education data system (IPEDS), the national dataset of college outcomes. (See chart below.)
So then why can’t black students become wealthy like their white peers? Maybe we need to rethink our advice. Maybe they shouldn’t choose between education and business. Among all students, black collegians need the option of going to college while starting a business.
Why is this? A college degree will not create wealth in and of itself. According to findings from the left-leaning public policy organization Demos, the median white adult who attended college has 7.2 times more wealth than the median black adult who attended college, and 3.9 times more wealth than the median Latino adult. College degrees, research shows, are almost a prerequisite for middle-class incomes, but black students must radically minimize their student loan debt as well as maximize the opportunities for wealth creation.
Student loans, which have been a $1 trillion problem for at least six years, cripple everyone who has to take them. But because black collegians go on to earn less than their white peers, their burden is heavier.
Mark Zuckerberg, Bill Gates and Steve Jobs all dropped out of college to take their businesses to the next level. Black entrepreneurs in college might want to do the same, but they’d face a lot of resistance from their parents. Indeed, being a black college dropout negatively affects earnings by at least $10 per hour, according to research by the Economic Policy Institute. Plus, leaving college early means that students have fewer opportunities to cement social networks that could help them launch their businesses and expand them in the future. For minorities who are already battling racial discrimination, unequal access to capital and fewer mentors, losing this network could be detrimental to future success.
Colleges that enroll large concentrations of black students can help fix this. If the aim of higher educational institutions is to prepare their charges for a successful life outside the classroom, they can nurture their students’ dreams of starting their own businesses, introduce them to investors who could provide the seed money to launch their ventures, and arm them with the skills and knowledge they’d need to grow them. And historically black colleges and universities can be a vanguard for change and wealth generation.
Thanks to President Trump, more students are choosing HBCUs. Admissions have skyrocketed since the 2016 election. Historically black colleges and universities provide safe spaces to develop academic and social skills in otherwise coercive political and social environments where black lives don’t seem to matter. HBCUs can also provide room to incubate and accelerate business ideas among black entrepreneurs. Morehouse College has partnered with Opportunity HUB, an Atlanta based multi-campus co-working space, pre-accelerator, and incubator. Earlier this year, Opportunity HUB selected 125 undergraduates from 60 schools as part of its flagship program, HBCU@SXSW; SXSW is the popular annual gathering that explores “what’s next in the worlds of film, culture, music, and technology.” Seems like a worthwhile endeavor; the U.S. Department of Education found that while HBCUs make up just 3 percent of colleges and universities, they graduate 27 percent of African-American students with bachelor’s degrees in STEM fields.
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There’s a lot of rhetoric about how brick-and-mortar campuses serve communities, but many spaces on campuses go unoccupied for parts of the year. (Campuses are especially underutilized in the summer.) Black entrepreneurs from on and off campus could use those spaces, perhaps for incubators and accelerators, which are currently mostly located outside college campuses.
Incubators provide physical office space and offer business services such as printing and internet, conference rooms, even management training, to those who apply and/or pay rent. Accelerators are businesses that select entrepreneurs to whom they provide intensive technical assistance (most often not offered in college) for specific periods of time, access to mentors in the field and “Shark Tank”-like pitch competitions to attract potential investors.
Although the research varies widely, the business magazine Black Enterprise reported that “[s]tudies show the survival rate of companies that go through an accelerator are three times that of companies that don’t.” Because personal relationships — who you know — influence who gets a spot in incubators and accelerators, race and racism play their part in the selection process. Black entrepreneurs often can’t find entrée into some of the most financially connected incubators and accelerators. According to Fast Company magazine, “Fewer than 1% of tech companies with black founders receive venture capital funding.”
In a 2016 analysis of start-up capital published by the education- and entrepreneurship-focused Kaufman Foundation, “Asian entrepreneurs rely the most on personal and family savings (73.2 percent of Asian-owned businesses); white entrepreneurs rely the most on business loans from banks (18.7 percent); and black entrepreneurs rely the most on personal credit cards (17.6 percent).” The same study found that black entrepreneurs were “almost three times as likely as whites to have profitability hurt by lack of access to capital and more than twice as likely as whites to have profits negatively impacted by the cost of capital.”
HBCUs can offer a natural alternative. They are already providing socially supportive campuses but there is room for them to nurture the next tech discovery, which could pay back debt-ridden families. Business majors can reduce the time (and cost) it takes to earn a degree if colleges adopt an accelerator model, offering shorter-term modules that are rooted in practice. Theoretically, students have access to low-interest funding in the form of student financial aid, but that’s only worth the paper the college degree is printed on. What happens after? Debt-laden graduates have to repay their student loans in addition to getting funding for their start-ups, beggaring them twice over.
One researcher of higher education found that approximately half (49 percent) of all black students entering college in 2004 defaulted on at least one loan within 12 years — more than twice the rate of white students (20 percent) and more than four times the rate of Asian students (11 percent). Private, for-profit institutions produced the highest default rates, but public and private nonprofit colleges (approximately 38 and 43 percent respectively) were dangerously high as well. If going to college is going to put you in debt, then students should be given greater ability to turn that debt into profits.
Change is sorely needed. Colleges could turn some of students’ low-interest loan money into start-up capital, providing mentors, office space and other services. Academic success and entrepreneurial achievement are not mutually exclusive — even for black students.
The next Zuckerberg, Jobs or Gates might be out there, in a dorm room at an HBCU.
We just need to give them the support they need to succeed.