Racial Disparities in Student Loan Debt

In an era of rising tuition costs and corresponding increases in student debt across the board, certain racial minorities appear to be disproportionately affected.

A growing body of research points to startling inequality in the debt burdens carried by black, Latino, and Native American students and those shouldered by white and Asian students. Best studied, and most dramatic, are the astronomically higher student loan debts of black students.

The reasons for these disparities are not entirely understood and systematic study of the issue is hindered by a lack of data. Notably, the U.S. Department of Education has been inconsistent in recording the racial characteristics of borrowers. Further, the problem likely has roots in racial inequities outside of the higher education sphere. A number of solid hypotheses have nonetheless emerged.

Marked differences in parental wealth between white and Asian students and black, Hispanic and Native American students likely make the latter cohort more dependent on borrowing to finance their educations. They are more likely to take out high-interest private loans, and to attend private, for-profit institutions. 

While black students in particular are more likely to drop out, thus leaving them with a debt burden without the higher earning power promised by a degree, it is worth noting that rates of college enrollment for all minority students has grown substantially. Pursuit of graduate degrees by black students in particular has increased exponentially in the last few decades.

Still, minority graduates, even those with advanced degrees, may find bias in the labor market and thus have difficulty in repaying their debt obligations due to a pay gap.

Current Findings on Racial Debt Disparities

It has been well-established that black students are much more likely to borrow in order to finance their educations. Because of how noticeable their borrowing habits and debt burdens are, they have been more closely studied than other minorities. Some 80% of black students take on federal loans, as opposed to around 60% of white students. Black students also more likely to drop out without finishing school.

Latino students appear to be on par with white students as far as rates of borrowing and may even borrow slightly less. Native American students are perhaps the least studied group, though some evidence has shown that they may suffer as much as black students.

A much-discussed Brookings Institute report from 2016 found that on average, black students owed $7,400 more than white, Asian, and Latino students upon graduation. As if that weren’t bad enough, that figure only multiplied over time, with black students holding nearly twice as much debt as white students a scant four years following graduation. More than half of this amount was interest. Some 48% of black graduates experienced this type of growth.

These findings are roughly corroborated by a 2016 study that focused on lower- and moderate-income (LMI) black and white students. Even at approximately equal family income levels, black students in the study group owed $7,721 more than their white counterparts.

A 2018 study found that black students held as much as 85.8% more debt than white students.

Analysis by the American Council on Education arrived at slightly less disturbing numbers for 2016 graduates: black bachelor’s degree graduates held around $4,300 more in debt than white students. Still, even this lower figure represents a dire economic burden for black students, especially in the face of negative amortization rates. Black students were significantly more likely to borrow than any other ethnic group, including Latinos, who appeared to borrow at slightly lower than average levels.

2017 analysis of the 2015-16 National Postsecondary Student Aid Study found that even after 12 years, the median balance for black graduates was 112% of the original amount borrowed. All other racial cohorts had made some progress on the principal, with Latino students maintaining on average the second highest balance at 83%.

A 2019 paper by public policy organization Dēmos also found that many minority students were substantially behind their white and Asian counterparts in repaying their loans 12 years after graduation. Black students, male and female, held over 110% of the original balance and Native American students close to 100%. Latino students fared slightly better, though female students held more debt (86%) than males (79%).

A 2018 study in the journal Sociology of Race and Ethnicity found that 15 years after graduation, black students held 186% more debt than white students.

A phenomenon known as predatory inclusion may go some ways toward accounting for the particular disparities observed among black debt holders. Because of their lower economic status, and consequent greater need for assistance in paying for their educations, some private loan companies and for-profit colleges may specifically target these students, offering them sub-prime loans and sub-prime educations.

Default Disparities

As one might expect given the racial disparities in student loan burdens, default rates are also higher among ethnic minorities. Even degree holders default, but the problem is particularly acute among dropouts who do not have the earning power of graduates but nonetheless still hold educational debt.

The American Institute for Research found in 2007 that the default rate of black students was five times that of white students and that Latino students defaulted at twice the rate of white students within a decade.

Brookings found that these rates had slightly improved for 2007-08 graduates, but were still dramatically different. Black loan holders were three times as likely to default as white borrowers and Latino borrowers twice as likely to default. Dēmos said in 2019 that 50% of black male borrowers defaulted within 12 years.

A 2017 analysis of 2004 graduates found that while almost half of black students defaulted, only a fifth of white students had and only a scant tenth of Asian students had been unable to meet their obligations.

The Effects of Attendance and Institution Type

A growing proportion of the population is seeking higher education. Nearly 50% of high school graduates now seek a college degree. There have been noteworthy increases in attainment by black and Latino students. Nonetheless, Latino and Native Americans have the lowest enrollment rates. Asian students have the highest.

However, black students are still much more likely to drop out after their first year of undergraduate education—alarmingly, often because they fear going into further debt. And they are the least likely of all races to graduate in four years, followed by Latino, white, and then Asian students. The extended timeframe of course means the accumulation of more debt.

According to Dēmos, even among associate degree seekers, borrowing is disparate between black and white students. 57% of black students borrow in pursuit of two-year degrees and only 43% of white students do the same.

Interestingly, pursuit of graduate degrees is much higher among minority students, which may account for a proportion of the increased educational debt among that cohort at a whole.

Per the American Council on Education, 57.2% of black bachelor’s degree graduates went on to pursue advanced degrees, while only 43.8% of white bachelor’s degree holders did the same.

Brookings found slightly lower numbers, indicating that 47% of black bachelor’s graduates in 2008 pursuing higher degrees and 38% percent of white students. Their analysis also discovered that 45% of the gap in educational debt was due to black graduate school attendance and suggested that blacks were twice as likely to accrue debt from this educational track.

A 2013 study found that black and white medical students anticipated higher levels of medical school debt than Latino and Asian students.

Further contributing to the disparity may be the tendency for black and other minority students to enroll at for-profit institutions, particularly for graduate school. Enrollment at for-profits has increased exponentially for all groups since the mid-1990s, but these schools appear to have captured a much larger proportion of the black population, both at the undergraduate and graduate levels.

While these schools may be cheaper, they tend to provide lower-quality educations, making it more difficult for graduates to compete in the labor market. They are also associated with substantially higher levels of borrowing — some 90% of attendees borrow by some estimates — as well as much higher levels of eventual default.

Historical Racial Disparities and Parental Assistance

While enrollment and attendance patterns do explain a portion of the racialized debt crisis, it cuts much deeper than that, especially for black students, the best-studied group. A centuries-long history of economic inequality continues to take its toll, from the brutal history of slavery to Jim Crow to employment discrimination and red-lining.

Parental wealth appears to play a large part in the eventual debt carried by students. And wealth accumulation can in most cases be tracked reliably along generational lines.

The exact reasons for the differences in wealth are not entirely understood, with patterns of income coming into play in addition to generational wealth transfer and typical asset composition (investments, real estate, etc.). What is clear that whites, followed closely by Asians, hold far more wealth than Latinos and blacks. White families are generally thought to, on average, hold ten times the wealth of black families — a gulf that actually increased in the wake of the recession.

Income statistics paint a similar picture: Asians have the highest median income in the country, followed by whites, Latinos, and blacks. As one might expect, Asian students have the lowest borrowing rates, followed by white students.

Even among middle-class minorities, parents typically have fewer liquid assets that can be used to assist their children. Analysis by the St. Louis Fed in 2018 found that middle class white households had quadruple the assets of black households in the same bracket and nine times those of Latino households in the same bracket. Housing wealth, which varies across racial lines, may be a further important determinant.

Another 2018 study found that debt disparities between black and white students were actually highest in the upper income brackets. White families with $150,000 in net worth accrued 54% less debt than those with negligible net worth. However, black families with the same net worth had nearly as much debt as those with no net worth.

The St. Louis Fed also found that among the majority of respondents to the 1997 National Longitudinal Survey of Youth, black students received an average of only $4,200 toward their educations from their parents while white students received $12,000.

Family wealth and income affects repayment as well. While the St. Louis Fed found that 41% of whites receive $10,000 or more in inherited money, only 13% of blacks received equivalent amounts.

The increased levels of debt that educated minorities are left with then continues to exacerbate wealth disparities.

Fixing the Problem

While racial disparities in educational debt defy easy solutions, a number of policies have been proposed that might mitigate the problem to some extent.

Among the most reasonable is making income-driven repayment (IDR) mandatory. By automatically enrolling federal borrowers in plans that set their monthly loan payments according to their income, monthly debt burdens may be eased and default rates might be lowered substantially. Of course, these plans extend loan terms significantly as well. And they don’t affect the ultimate amount paid unless the borrower remains under a certain threshold of income for 20-25 years.

More drastically, some have proposed loan cancellation for borrowers under a certain income. Among the most notable of these plans is that put forth by presidential candidate Elizabeth Warren. She has suggested cancelling up to $50,000 in student loan debt for households with income below $100,000.

Perhaps the most important policy adjustment would be more regular tracking of federal borrowing along racial lines. The Free Application for Federal Student Aid (FAFSA) does not record the racial characteristics of borrowers, nor does the National Student Loan Data System (NSLDS). Doing so would create a more accurate data set that could be used in instituting targeted solutions.

Notably, data on Latino and Native American borrowers is deficient and especially in light of the findings that have emerged regarding these groups, further study would clearly be beneficial.

And because the roots of student loan debt disparities lie in the racialized economic system of the United States, study of how historical inequality manifests in the contemporary financial situations of minorities is sure to shed further light on the situation.

Debt at Graduation by Race

These tables are based on the 2015-16 National Postsecondary Student Aid Study (NPSAS). They show average debt at graduation among the students who graduated with student loan debt, and the percentage graduating with debt. In all cases, black students are much more likely to graduate with debt than white students. Among students graduating with Bachelor’s degrees and Associate’s degrees, black students graduate with 13% and 26% more debt, respectively, than white students.

 

 

 

 

Data for graduate degree programs are more limited, but show greater disparities when available. (Data for medicine and osteopathic medicine by race was not available.)