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The College Wealth Premium Has Collapsed

Discussion in 'News - Breaking News & Political Forum' started by Black Ambrosia, Jan 13, 2020.

  1. Black Ambrosia

    Black Ambrosia Well-Known Member

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    The College Wealth Premium Has Collapsed
    Younger folks have come of age during an era of consumer debt.
    Annie Lowrey

    January 8, 2020
    [​IMG]

    Younger folks have come of age during an era of consumer debt.

    Is college worth it? As the cost of American higher education soars, inequality widens, and wages stagnate, millions of Millennials and Gen Zers have asked themselves that question. The answer, at least from economists, has remained a resounding yes. One study found that college graduates earn nearly twice as much as their peers without a college degree.

    But what if those earnings are no longer translating into financial security and long-term prosperity? A new study by researchers at the Federal Reserve Bank of St. Louis suggests that might be the case. College still boosts graduates’ earnings, but it does little for their wealth.

    The paper, by William R. Emmons, Ana H. Kent, and Lowell R. Ricketts, is an exercise in pulling apart averages. As a general point, college graduates earn more and are worth more than people without college degrees. And, as a general point, the college earnings and wealth premiums—meaning how much more a person with a college diploma makes and owns than an otherwise similar person—are large. But upon close examination, terrifying generational and demographic trends emerge.

    The college earnings premium has proved durable and considerable overall. White people born in the middle of the century got more of an earnings boost for attending college than white people born in the 1980s—but the boost for both groups was big. (“People” is close-enough shorthand here; the authors use a more technical household comparison.) And black people born in the ’80s got a similar income bump, compared to black people born in the ’40s and ’50s.

    But the wealth premium has collapsed precipitously over the past 50 years. White graduates born in the ’30s were worth 247 percent more than their non-college-educated peers; white people born in the ’80s were worth just 42 percent more. Among black families, the wealth premium sat at more than 500 percent for those born in the ’30s and fell to zero—yes, zero—for those born in the ’70s and ’80s.

    Notably, the study corrects for the fact that households tend to accumulate wealth as they age; the issue is not that members of the Greatest Generation and Boomers have had more time to let their homes appreciate and their money sit in the stock market. They were always on a different wealth trajectory than their kids and grandkids.

    The authors cite a few reasons why this might be the case. The first has to do with asset prices. Older generations were able to buy houses and stocks when prices were low, then saw the value of those assets rise. Recent generations have faced high housing prices, and have found themselves unable to buy their way into the stock market. Therefore, they have not been able to take advantage of the recent run-up in asset values. “The three oldest cohorts we studied generally have experienced fortuitous asset price fluctuations,” the authors write.

    The second potential factor involves Wall Street’s financial engineering. Younger folks have come of age during an era of consumer debt, with banks more than happy to load customers up with credit cards, car loans, and so on. Those debts then get subtracted from the value of families’ assets when determining their net worth, helping to explain the Millennials’ crummy wealth accumulation. “The leveraging of college-graduate balance sheets over time is entirely consistent with the progressive weakening of their overall financial positions that we identified—even while the college and postgraduate income premiums remained intact,” the authors write.

    Finally—most obvious, and perhaps most important—is the cost of college and graduate school itself. The price of consumer goods has increased by a factor of four since the late 1970s. College costs have increased by a factor of 14, the study notes. More and more students have taken out heavy debt burdens to be able to go to school, burdens that then eat away at their earnings, month after month, for years on end. That has forced millions of Millennials to delay life milestones, including getting married, having children, and owning a home, for years, if not for decades, if not forever.

    Even if going to college is still important for young people’s earnings and employment, it is less of a clear economic boon than it was 30 years ago. In a way, the paper makes a powerful argument for making college a public good, low-cost or even free for everyone. The spiraling cost of higher education is choking Millennial families, and more young people would be able to go to college—and get the full financial benefit of getting a degree—if they were able to do it for the same price as their parents paid.

    TLDR College is good for earning potential but it’s impact on wealth has diminished significantly and is basically zero for black people. This is because everything costs more than it did for previous generations especially college. Because of their debt and the higher cost of things millennials are delaying life events like buying homes and investing which has caused them to miss out on the recent run up in values.
     
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  2. Black Ambrosia

    Black Ambrosia Well-Known Member

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    We’ve all heard this before but I thought this was slightly different since they look at wealth instead of just wondering why millennials are buying.
     
  3. naturalgyrl5199

    naturalgyrl5199 Well-Known Member

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    Unfortunately for blacks--we are at that point where so many are choosing college and have to rack up educational debt to finish their degrees, and now that they are finished---the bill has come due.... I dont think thats going to change in the short term.For the next generation, my own children are going to be enjoying low debt or loan free college bc mom and dad are NOT living high on the hog and investing in Florida Pre-paid for both of them (age 2 and age 6).

    If they have the credit and the money, they should consider going ahead and investing in starter homes while the getting is good to start building wealth. The problem is, many are part of a very entitled set: I'm part of a Public Health group for black women online and the older ones like me (more than 1 degree, established 10-15 years in our field) are spending a lot of time trying to get ladies with no kids, no entanglements (so they can easily move) to accept the entry level jobs. Many are leaving school with a Masters Degree but limited experience and skills. They are often opting to wait for the "big one." And thats because the market is now saturated with LOTS of black women with MS degrees and its almost becoming like a bachelors (in that field)....and they were promised certain income levels with a year or less of experience. Yeah that was the case as little as 5-7 years ago. You used to could walk into the CDC with no experience, an MS degree in anything health related and they'd throw $60K at you. No more. ---Or $60K isnt enough to live in certain areas (CDC is everywhere). The rule that you need to "start somewhere with your no skilled self" still applies. These newbies are also competing with highly experienced professionals who are taking advantage of online MS or even PhD degrees that traditional brick and mortars are offering---so they can get promoted faster. So someone with an MPH isnt going to get chosen over someone with a BS and 7 years of experience who can walk into the door, take a little less than someone with an MPH has so they don't have much training to do---only to finally finish the degree and get promoted with a raise within a year or so. Can't they cannot compete.

    New graduates need to play the long game and be patient....
     
  4. Laela

    Laela Sidestepping the "lynch mob"

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    I think the resurgence of long-forgotten vocational careers can help blacks stay competitive and keep them in the wealth game; unfortunately those careers are stigmatized but as consumers buy homes, they'll need service companies to address the aging homes.. plumbers to fix or replace aging pipes/systems.. HVAC folks ...etc. Hispanics and low-income whites are cornering those markets. While getting a PhD is grand, everyone isn't cut out for academia. Nowadays, a traditional college degree is the equivalent of a high-school diploma.
     
  5. NijaG

    NijaG Well-Known Member

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    I have two (5 & 2) boys and when they get a little older, I plan on getting them involved in some non-IT related technical skill set.
    They will still go to University, but before that I want them to have skills they can use to help themselves make money as needed.

    I do taxes and I can tell you that many of these non-IT skilled technical taxpayers are doing quite financially.
     
  6. Everything Zen

    Everything Zen Well-Known Member

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    I keep telling people to be smart about how you get your education. I was blessed to have my folks pay for undergrad but my masters was covered at 90% by my job bc I was able to work for the university itself with no golden handcuffs- I was free to leave at any point without having to pay anything back. I keep telling young people to look into Walmart - they’re willing to pay for degrees in supply chain among other degrees or you could even use it to work on some of your core curriculum coursework. Work whatever angles you can.
     
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  7. naturalgyrl5199

    naturalgyrl5199 Well-Known Member

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    Non traditional fields for sure. I saw a black guy and his black friends on You Tube...they created an Eviction Processing Company. Pay them and they will serve your eviction with you. Its lawful, possibly lucrative...and its THEIRS. There are other cool things, like cleaning up crime scenes. Nasty but lucrative. I'd like to see more black folk entering unique needed services and creating that niche and ownership of said field....like South Asians and Nail Care.
     
  8. naturalgyrl5199

    naturalgyrl5199 Well-Known Member

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    "More and more students have taken out heavy debt burdens to be able to go to school, burdens that then eat away at their earnings, month after month, for years on end. That has forced millions of Millennials to delay life milestones, including getting married, having children, and owning a home, for years, if not for decades, if not forever."

    And see. This is why Bernie Sanders and whomever else...want to delete student loan debt. It WILL improve the economy in spades. More home building, more purchasing, and a people will feel more solvent in financing. He has a HUGE point. Or reduce it by 90%.

    What the problem is...and this is what the rich and banks like to do is to monetize EVERYTHING. Since when was college profitable business? Student loans are profitable for banks as long as they get their payment. When people were throwing those ARM loans at people (as a result of the law saying you can be penalized for discriminating against people and refusing loans based on color)...they were throwing it at them and figuring out a way to monetize and easily passing the loan to another bank when it no longer became profitable---such as the loan rates dropping.

    Also---everyone bit the college apple. They told everyone "College is the WAY, the truth and the light." Errbody bit...and the market is saturated with a bunch of educated people who still have no soft skills, no transferrable work skills. And even though they are social media savvy, I can still see kids coming out of their teens with no REAL computer skills. At all. So we have a new crop of kids with book education, no common sense or street smarts, and no work skills.....wanting to be paid $60-80K at the first job they apply to. Do they deserve it? (ETA: Suuuurrrreee????). But its not there. Period.

    So Bernie Sanders assessment makes sense. People with little to NO DEBT can live well for less than $50-$60K in (ETA: MANY, maybe not most) of the territorial United States.
     
    Last edited: Jan 22, 2020
  9. Laela

    Laela Sidestepping the "lynch mob"

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    Glad you mention that... Real estate is another lucrative field (investments)... There's also a young man pushing the multifamily movement...I think he's based out of NO and is telling all black millennials who will hear how to live rent-free while building wealth by buying multifamily properties and living in one of the units. He's got a whole business and appears very successful.
     
  10. RoundEyedGirl504

    RoundEyedGirl504 Well-Known Member

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    Yes, his name is Julien I believe.
     
  11. Laela

    Laela Sidestepping the "lynch mob"

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    Yeah..that's him! lol
    I couldn't remember his name when I wrote the post and meant to look him up. For those interested, here's his info!
    Jullien Gordon

    His mission is to fully free 300 people, like Harriet Tubman :yep:
     
  12. Queenie

    Queenie Well-Known Member

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    I have a white friend who does HVAC. He lives in a 4 bedroom home with a pool. It's pretty much paid for. He has enough leave/overtime saved up that, for the next couple of months, he's going to stay with friends out in Colorado and ski everyday. Lift tickets are $150 daily, $900 for the season. I really wish that it was me.

    I'm hoping to in 8 days of skiing this year, but I can hardly take any time off due to a re-org. of my department, and I'm halfway through a masters in Finance.

    Also, I have a friend who's SIL is a mechanic. His wife (who went to college) stays home with the 4 kids, because he makes enough money for her not to work.
     
    Last edited: Jan 21, 2020
  13. naturalgyrl5199

    naturalgyrl5199 Well-Known Member

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    At this point, the name of the game is "Multiple Streams of Income"
    Way back I think in 2010 or 2012 I made a thread in the Finance(?) forum about having another stream of income. I was teaching part time at an HBCU at the time earning an extra $12K/year to supplement an embarrassing full time salary. I did that for 5 years and was doing a lot more consulting as well to supplement my income. I put that down and its been almost 6 years (had 2 kids during that time), and I'm a little more seasoned in my career. I feel like where I am, I've peaked. So I'm gonna go ahead and make moves to reinvent myself. For now my main job is stable, but the local College of Medicine is interested in me teaching again but its at a PWI. I think I'm ready to write that book and its starting...But this is what many non-college educated with a WHOLE LOT OF STREET SMARTS have already figured out....and colleges need to catch TF up.

    The top 1% of the 1% who holds over 50% of the global wealth AINT INCREASING WAGES. We are gonna have this recession soon and if not, a daggone revolution and protest on stagnant wages. These rich folk are ridic: You want to KEEP goods high in the US like medicine and medical care but you want to make insurance high and inaccessible, healthy foods high, goods have come down immensely but wages have not adjusted to the COL. This is why MLK was REALLY murdered...MLK finally met his maker because he was moving away from civil rights and race talks and making a huge fuss about poverty and wages. Marching with poor white folk and other POC about standing up about wages being low and basic rights on the job--labor issues...and I think that was the problem the rich and wealthy had...they TOLERATED the race stuff.....
    Point is---because they are not letting up on the money, we can't expect things to change short term. Drugs, medical care, food, goods have to change and their has to be a paradigm shift. We still have an uneducated bunch who vote against their own interests...but for now...for many...1 job aint it...and I'm having to share this with up and coming college grads that I mentor...be ready to grind in your good years...
     
  14. Laela

    Laela Sidestepping the "lynch mob"

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    Have you seen this guy on the Breakfast Club recently? he speaks to the bolded (start at 27:04)



    :lol: @ DemonCrats and Republi-Klans


     
  15. nyeredzi

    nyeredzi Well-Known Member

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    This is really fascinating. I'm going to take this (the source paper from the St. Louis Fed) and talk about it with all my PhD and stats colleagues ...

    Now one thing I will say that strikes me right off the bat is that the cohort that is showing that $0 premium on wealth for college is youngish (the one born in the 80s). We know that people take longer to get established these days, and thus longer to build wealth. If they were born in the 80s, they are under 40 and may just be getting done with student loans. We know people also buy houses later and for Americans, the major source of the wealth for the non-elite is the value in their home. It is possible, maybe even likely, that that premium will rise to something non-trivial as that cohort gets older. It still would be unfortunate that basically they'd not see any wealth premium until they were 50 or older, and this report is still really amazing.
     
    Last edited: Jan 24, 2020
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  16. Black Ambrosia

    Black Ambrosia Well-Known Member

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    Please come back and share once you do. I'd love to get more input on the study.

    Also, I just want to point out that the article mentions early on that it adjusted for younger groups not having the benefit of time that the older groups had and it makes the case that the younger generations are at a disadvantage (from a time perspective) because they aren't benefiting from the run up in values in the stock market and real estate because of their late start. In theory, they'll benefit from later peaks but I think the point is that when they get in things will be more expensive because they missed out on the run up that other generations benefitted from.
     
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  17. nyeredzi

    nyeredzi Well-Known Member

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    Yes, I see that, thank you.

    I could be wrong in my interpretation, but looking at the wording "the amount of wealth accumulation we would expect at any given age", I think the general point about wealth expectations for younger groups I'm trying to make is .... what does it even mean, to have a single expectation of wealth accumulation for both the college v. non-college group? That is, one could imagine a world where one reasonably expects 30 year olds with no college to have more wealth than 30 year olds with college (because the latter still have college debt) but where it's no longer true for those same individuals by the time they are all 50.

    For black people in particular, though, that world we know is not true because it's 0 even for people old enough to now, mostly, be out of student debt.
     
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  18. Black Ambrosia

    Black Ambrosia Well-Known Member

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    That's an interesting analysis. It seems like a logical conclusion that there'd be more wealth without a degree (for millennials) but I wonder how not having a degree indirectly impacts that group. Perhaps they buy less expensive homes sooner than their degreed counterparts? I'm not sure who ends up being the winner in that situation. Not having a degree doesn't have to have a negative impact if they take up a trade instead but I guess it depends on what they end up doing.
     
  19. nyeredzi

    nyeredzi Well-Known Member

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    It's an excellent question. I don't know what they are doing to acquire their wealth. Maybe they're just getting into less debt overall? At 30 years old, I was worth about -$70,000 or so because of (almost entirely) student loan debt. So if you had not gone to college and acquired no student loan debt,the only thing you had to do to beat my net worth was not have $70,000 in credit card debt or something. You could have $1000 credit card bill and no assets except a busted car and still have blown me out of the water in terms of net worth. But 10 years later, that's no longer true and we're fast approaching the median wealth of a white household (Heeeyyyy, Good Times! *shuffles across the floor*)

    It suddenly remember that Blacks actually have no wealth :lol: like, median black household wealth is $10,000. So it's probably not that they have accumulated so much wealth, it's just that they haven't gotten into as much debt, at least relative to their income.

    It also occurred to me that it's still possible for all this to be true, but it still be true you get more having a degree. Just not more wealth. Here's how it can be true: You have no more wealth than your non-degreed counterparts, but it's not solely because of student loan debt. It's because you are also supporting a higher standard of living. So you live in a nicer house, drive a nicer car, kids go to a nicer school, kids in more expensive daycare, go on nicer vacations, etc. In the end, you don't have anymore saved, than your non-degreed counterparts, but you are buying nicer things day-to-day.
     
  20. Black Ambrosia

    Black Ambrosia Well-Known Member

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    I agree. The debt trap definitely isn't limited to student loans. Nicer things usually means bigger debt. Wealth is a foreign concept to a lot of people. Aside from inheriting a house and a life insurance policy, most people don't have any firsthand experience with wealth so it makes sense that they don't think beyond building a life. A nicer house sounds like a materialistic choice but it's usually driven by safety and school systems. Nicer school and more expensive daycare are a reflection of giving your child better options. The nicer car and vacation are usually the result of not wanting every decision and dollar spent to be about other people (husband, kids, etc). Maybe you can't live the carefree life you want or spend money like your rich friends but you can enjoy a few things that are entirely within your control.
     
  21. Queenie

    Queenie Well-Known Member

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    I when I was doing retirement planning with people this is what I saw generally speaking with black clients. They would be making the same income as the white clients, but they lived a nicer lifestyle. To the outside world the black clients looked like they were making more money, but they had almost no savings and were not interested in making lifestyle changes to save. They would say that they couldn't afford to save money.

    However the white clients were determined to save, and would live more frugal lives to save more. They would say, "I have to put money away for retirement".

    What I was able to determine with people is that we tend to imitate what we saw our parents/family do.
     
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  22. naturalgyrl5199

    naturalgyrl5199 Well-Known Member

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    You can look at blacks having no wealth as a negative, but don't let it get you down.

    I think that its because its what ya'll said...more blacks are going to school but the cost of entry is in the form of a loan. I still think for BLACKS as a whole in the US, education is the key to a better life. Period.
    Blacks with an education that stops in HS will never do as well as educated blacks. Period. And the way things are looking, its getting worse for ALL low education people (cause non-college educated white (read: Republicans)...are scapegoating everyone else bc they aren't living well on their whiteness like they used to 50-60 years ago)....so blacks will always have it worse that whites. Period.

    That being said, I was just explaining to someone about living well on less. Again, I explained how when I came into the workforce after getting a MS degree...the salary was so paltry I took a second job and added at first $6K then $12K/year.
    I also finally explained that...yes, I can afford a Benz...Yes I can afford more luxurious things....But why? My kids need a college fund. So that extra $200/month on a higher car note is a nice investment in a college fund for a 2 YR old when you start that young. I could afford Louis Bags but WHY? I worked hard and deserve those things but I had to sit down and really re-think this thing. Once I got to the point that I could get these things with a swipe and a signature, all of a sudden I didn't even want them. And that's the part well-to-do blacks often miss. Most of us are making more than our parents made so we THINK we need this to feel successful. But I have had to re-think WHAT success looks like. Owning my home (re-financed to a 15 year mortgage....A new BASIC Birkin costs what? $15-20K? Specialty skins are what $65K-$80K? Its only costing me $4800/year more to pay my mortgage off faster. Having a college fund for my kids. Contributing to my retirement NOW....not later. Having a Roth IRA or something similar. I'll drive my little Altima. And yep---please think I'm regular. I've been eyeballing a Chevy Traverse....its so regular degular...but we gone pay off the Altima first. I think I will lease from now on. I just don't want to have anymore revolving debt outside my house and the college funds. I want to leave my kids with something. Some money. A fat check. Kids now have to re-think these things...and they are. Redefining "success."
     
  23. naturalgyrl5199

    naturalgyrl5199 Well-Known Member

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    The conditions right now concern me because 2020 forward, you aren't going to be able to make it without a trade or degree. As things get more and more technological, automated, more education is needed. Data mining and informatics in ALL fields is important....A HS diploma will never be enough for opportunities for better earning potential. I think the answer is going to be that student loans become a thing of the past. Education in the future will not be so costly bc its getting close to saturation. The system is unsustainable. (but I digress)

    back to conditions. Right now---they can't even fill manufacturing jobs because while no college degree is always needed, they still don't have people who can do the job, learn the skills, run the machines, do the basic math needed. And you have to consider other non-monetary benefits of having a degree. Better jobs equal attaining jobs with better leave, better insurance, better conditions for family, flex time. My full time working, zero debt counterparts with no degree don't have great leave, or great benefits. Some of them make so little they can't afford daycare. Those that do work run into problems like getting a hard time from a boss because they took time off to care for a sick child. These are the same moms sending their kids to school very sick because they've been warned and don't want to lost their job. They work jobs where they can't take much leave. Sure they have no college debt, but they're back to work after having a baby within a month. Or less. Many after C-sections. This is SUPER important for women. I stayed in my field bc its extremely family friendly. And many of us have traded super high salaries per our skills just so we can come and go as we please. I am taking off tomorrow because me and hubby need a date. So we're playing hooky and headed to the movies. Cause he is the same. Making "okay salary" but works in a department at his Uni job with other dads who won't even question why he is off tomorrow. (fair disclosure his loan is paid off thanks to parents). My job wanted me back so bad they redid my whole office so my baby can hang out with me at the office until she was 6 months old.... My boss and her boss set it all up. My boss threatened my staff not to bother me. All these unspoken benefits of a better job with better earning potential is only even thought about once some gets a positive pregnancy test. When job conditions, needs, wants should be considered earlier and earlier now. Which is unprecedented now. It used to be that you just graduate, get a good job, get promoted or move to better job with better pay and it would all fall into place.
     
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  24. RoundEyedGirl504

    RoundEyedGirl504 Well-Known Member

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    I am curious why the premium dropped to zero for black people born in the 70s/80s? I am going on the assumption that they are the children of the people born in the 40s/50s who had the benefit of the premium - so what happened there? My own anecdotal experiences point to the fact that even with the premium folks were scrapping to make it. But I don't know if that tells the whole story. Post integration economics?
     
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  25. naturalgyrl5199

    naturalgyrl5199 Well-Known Member

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    I'd say it would be zero for kids born in the very late 70's--post 1977/78...these would be HS graduates after 1994.

    Couple things:
    Cost: My granddad paid for almost all his kids in the (EARLY-mid) 70s and early 80s to attend college, He would write a $2500 check per semester on average and almost all of them attended HBCUs which many are private. That was tuition, room and board, and incidentals, books. When I started at a PWI in my home state in 1998...tuition was $66.00/credit hour, $150/credit hour out of state...When I started grad school in 2003, tuition in state was like $189/credit hour in state. and $300 or so out of state....... Now for an in-state school its like $215 I believe. Its $721 for out of state for undergrad....Grad school in state: $479/credit hour and $1110/credit our out of state...That's an exponential increase in 20 years.

    Loans : For low income folk, loans it is. And for low-income folk---(blacks are the highest college attending group in the low-income bracket) there continues to be a cycle of 1st-generation college attendees. Good---but that's that STRUGGLE and LEARNING CURVE. As more blacks come from poverty get degrees, they need more assistance than other families who have better access to grants, scholarships, a check from the parents, and little to no loan money. Its gonna take a couple more generations to turn it around. But right now blacks graduate with more loan than anybody.

    Wages stay low. Cost of goods and fees go up faster than wages. I'm waiting for the ball to drop.

    Someone told me they didn't want to do FL-Pre paid for their kids bc they penalize them for leaving the state for college. I plan to teach my kids cost and practicality, and I'm pretty sure they'll be okay attending school FOR FREE in FL. And its what we can afford....AND its better than nothing. If they attend out of state on scholarship...they will then write me a check to the tune of several dozen thousand and we can apply that to any fees needed. And we have already re-financed the house to a 15-year so by the time the oldest is maybe a sophomore in college the house will be paid off if we don't pay it off sooner. #playthelonggame #liveLOWonthehogevenwhenincomeisGOOD
     
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