Student Debt and Race

A college degree is widely considered one of the most reliable paths toward upward economic mobiilty. But for minority students, that promise often falls short. That’s in part because student debt exacerbates existing racial wealth gaps.

There’s no one single reason that explains why Black families struggle more to afford college. Generations of unequal access to higher education, especially during the GI Bill-driven expansion of higher education after World War II, has given white workers more access to higher-paying jobs. Systemic underfunding of historically black colleges and universities, insufficient need-based grants and years of defunding of public higher education all contribute to the problem — as does racism in the job and housing markets.

The aftermath of these disadvantages is clear: Black families have not been able to build up the wealth and income they need to pay for college. As a result, Black students borrow more, regardless of the type of college they attend. Lower-income Black families rely on debt far more than lower-income white families. Roughly a third of Black parents who took out PLUS loans are from families with an adjusted gross income of less than $30,000, according to research by New America. Only 10% come from households earning more than $110,000. For white families, the reverse is true.

After graduation, the inequalities widen. The Center for American Progress found 12 years after enrolling, the average Black borrower who earned an associate or bachelor’s degree was unable to pay down any debt. For example, in 2015, Black bachelor’s degree holders owed 114% of their original loan. Latino borrowers owed 79%, while white bachelor’s degree holders were able to pay off about half of their loan balance. The data shows those repayment gaps are getting worse.

Black borrowers also are at a greater risk of defaulting on their student loans. Nearly four in 10 Black borrowers who entered college in 2004 eventually defaulted, compared to 12% of white borrowers and 20% of Latino borrowers, according to the Brookings Institute. Graduating doesn’t diminish the gap, either. Black bachelor’s degree holders default at five times that of white bachelor’s degree holders. In fact, 12 years after college, Black graduates with a bachelor’s degree are more likely to default than white college dropouts.

What explains the differences in default rates? Black students also disproportionately attend for-profit colleges, which are correlated with higher debt loads, and colleges with fewer resources. When students leave college, the same discrimination outlined above — bias in hiring and wages — also plays a role.