How Student Debt Hurts Young Adults of Color

Posted May 10, 2021
By the Annie E. Casey Foundation
Blog howstudentdebthurts 2021

Youth and young adults want the oppor­tu­ni­ty to advance their edu­ca­tion and pur­sue career and life goals. Yet, many are sti­fled by the high cost of obtain­ing a col­lege degree or access­ing oth­er post­sec­ondary options. For those who do attend col­lege, stu­dent debt — which has climbed to $1.7 tril­lion for all bor­row­ers — can be severe­ly limiting.

For those strug­gling to pay their loans, neg­a­tive con­se­quences can include low­er cred­it scores, less sav­ings, wage gar­nish­ments and defer­ring key deci­sions, such as buy­ing a house or mov­ing out of a caregiver’s home. Dis­pro­por­tion­al­ly, these out­comes fall on peo­ple of color.

It’s impor­tant to under­stand the ways in which debt dis­pro­por­tion­al­ly impacts peo­ple of col­or,” says Vel­vet Bryant, a pro­gram asso­ciate with the Annie E. Casey Foun­da­tion. As we expand solu­tions to address the racial and eth­nic wealth gap, we must tack­le the issue of stu­dent loan debt and how it dis­rupts the finan­cial sta­bil­i­ty of young adults.”

The Casey Foun­da­tion explored sev­er­al sources that high­light the racial and eth­nic dis­par­i­ties relat­ed to stu­dent debt — and that rec­om­mend poten­tial solu­tions to the prob­lem for pol­i­cy mak­ers, sys­tem lead­ers and the pri­vate and phil­an­thropic sectors.

A 2020 paper from the Aspen Insti­tute, Mak­ing the Case: Solv­ing the Stu­dent Debt Cri­sis, which draws on numer­ous stud­ies, reports that:

  • 21% of African Amer­i­can bor­row­ers are behind on their stu­dent loan pay­ments, com­pared to 16% of Lati­nos and 6% of white borrowers;
  • the typ­i­cal African Amer­i­can bor­row­er owes 95% of their stu­dent debt 20 years after enroll­ment, com­pared to 6% for white borrowers;
  • esti­mates show that default rates are much high­er for stu­dent bor­row­ers who are Black (49%), Native Amer­i­can or Alas­ka Native (41%) and His­pan­ic and Lati­no (36%) com­pared to white peers (22%); and
  • female bor­row­ers, who tend to be paid less than men, often strug­gle to pay back their stu­dent loans, with Black and His­pan­ic women more like­ly to default than white women.

Oth­er analy­ses report sim­i­lar find­ings. Research from Colum­bia Uni­ver­si­ty pro­fes­sor Judith Scott-Clay­ton finds that four years after grad­u­a­tion, Black grad­u­ates owe almost twice as much as their white coun­ter­parts. And between 12 and 20 years after grad­u­a­tion, Black bor­row­ers are five times more like­ly to default on their loans, accord­ing to Scott-Clayton’s research.

Fac­tors that con­tribute to dis­par­i­ties in stu­dent debt

The dis­par­i­ties in stu­dent debt have their roots in his­toric dis­crim­i­na­tion and mar­gin­al­iza­tion that has hin­dered the eco­nom­ic prospects of Black Amer­i­cans and oth­er peo­ple of col­or — cre­at­ing what’s known as the racial and eth­nic wealth gap. Peo­ple of col­or tend to bor­row more for edu­ca­tion than white peers because their fam­i­lies earn less income and have less wealth, notes a Brook­ings Insti­tu­tion pol­i­cy analy­sis. With lit­tle or no assis­tance avail­able from their fam­i­lies, bor­row­ers of col­or are often left to pay back and nav­i­gate debt on their own — which puts them at greater risk of adverse con­se­quences relat­ed to stu­dent debt, accord­ing to Mak­ing the Case.

Oth­er fac­tors play a role:

  • Peo­ple of col­or dis­pro­por­tion­al­ly enroll in for-prof­it col­leges, which heav­i­ly mar­ket to diverse stu­dents, accord­ing to an Aspen Insti­tute analy­sis. Near­ly half of the atten­dees of these schools default on their stu­dent loans with­in 12 years, and sur­veys show that many feel they were left worse off after their expe­ri­ence with a for-prof­it col­lege, accord­ing to the analysis.
  • Peo­ple of col­or make up a dis­pro­por­tion­ate amount of bor­row­ers with bal­ances of less than $10,000, accord­ing to a report from Asset Fun­ders Net­work, Major­ing in Debt. These bor­row­ers, many of whom did not com­plete their degrees, are more like­ly to default on their loans after three years than those with larg­er balances.

Stu­dent debt widens the racial and eth­nic wealth gap

While dis­par­i­ties in stu­dent debt are fueled by the racial and eth­nic wealth gap, they also con­tribute to the gap. A Brook­ings Insti­tu­tion analy­sis from researchers Andre Per­ry and Carl Romer cit­ed a Jour­nal of Con­sumer Affairs study that esti­mat­ed that 3% to 7% of the racial wealth gap was dri­ven by stu­dent debt, and that esti­mate is only like­ly to grow.

Poten­tial solutions

Fed­er­al pol­i­cy­mak­ers have put for­ward a vari­ety of plans to pro­vide relief to peo­ple strug­gling with stu­dent debt — includ­ing for­giv­ing $50,000 in fed­er­al stu­dent loan bal­ances for all bor­row­ers or elim­i­nat­ing the debts alto­geth­er. Some argue these larg­er pro­pos­als would have the great­est impact on the racial and eth­nic wealth gap, giv­en the high­er lev­els of stu­dent debt peo­ple of col­or car­ry. As the Brook­ings Insti­tu­tion analy­sis from Per­ry and Romer point out:Black bor­row­ers typ­i­cal­ly owe 50% more in stu­dent debt upon grad­u­a­tion than their white peers — and four years lat­er that num­ber jumps to 100%.

Major­ing in Debt sug­gests focus­ing on reduc­ing bur­dens for those with bal­ances under $10,000 — as bor­row­ers at that lev­el are more like­ly to default and many are peo­ple of color.

A 2020 Aspen Insti­tute Finan­cial Secu­ri­ty Pro­gram report fund­ed by the Casey Foun­da­tion rec­om­mend­ed that state governments:

  • reduce the cost of col­lege atten­dance, includ­ing by expand­ing free and low-cost degree pro­grams and offer­ing more tuition assis­tance to stu­dents of col­or, as well as those who are par­ents or are from low-income households;
  • pro­tect stu­dents as they pay down exist­ing debt by reg­u­lat­ing stu­dent loan ser­vicers and offer­ing debt-for­give­ness for bor­row­ers who haven’t com­plet­ed their degrees to re-enroll; and
  • decrease exist­ing stu­dent debt bur­dens, includ­ing through state tax cred­its for bor­row­ers, state-spon­sored refi­nanc­ing plans, and loan for­give­ness pro­grams for those who enter cer­tain pro­fes­sion­al sec­tors, such as health care and education.

Addi­tion­al Resources About Stu­dent Debt and its Effects

Solu­tions to the Stu­dent Debt Cri­sis in a Time of Eco­nom­ic Distress

Major­ing in Debt: Why Stu­dent Loan Debt is Grow­ing the Racial Wealth Gap and How Phil­an­thropy Can Help – Asset Fun­ders Network

The Casey Foundation’s ongo­ing work to reduce debt in the South

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