The Color of Student Debt

“Racial disparities in student debt are closely related to the stark racial disparities in wealth characterizing American society.”

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Race-based differences in student loans are little understood and often ignored in debates about higher education financing.  New research might help us to change that.  Back in 2010, the College Board noted that 27 percent of black bachelor’s degree recipients had student-loan debt of $30,500 or more, compared with just 16 percent of white bachelor’s degree students.  Of those who borrow, black students have an average of over $4,000 more debt than white students.

In “The Color of Student Debt,” researchers lay out evidence that two factors account for “over half of the black-white disparity in student loan debt.”

First, African-American families are much less likely to have wealth (as opposed to income) available to help family members attend college.  How much less likely?  Black families have, on average, six times less wealth than white families.  Why does this make a difference?  The methodology used by the Department of Education for the FAFSA focuses on income and excludes most assets when it determines what a family must contribute to pay for a student’s education.   Low-income, low-wealth students of all races are harmed by Expected Family Contributions that often bear no relationship to what their families can actually afford.  They don’t have any additional assets or family resources (such as grandparent-owned savings accounts) to draw upon.  In the big picture, this hits students of color especially hard because they come from families with lower rates of home ownership.  The Great Recession destroyed much of the wealth of the black middle class.  Black families are more likely to have “negative” assets– that is to say, other significant debts.  All of this adds up to mean that, on the whole, black families must borrow more often and in higher amounts than white families to meet the same Expected Family Contribution.   The racial gap in wealth has complex roots in discrimination in housing, education and employment.  Student debt only compounds the effects of past discrimination on future wealth-building.  Students with heavy student debt burdens cannot purchase the homes and businesses that power economic mobility.

Second, students of color are much more likely to be funneled into for-profit schools and underfunded schools that provide little financial aid.  Low-income students who attend schools that that do not or cannot provide need-based aid must rely on loans to pay high net tuition costs, plus living expenses.

Concerns about high debt burdens have already led to a tightening of lending to parents under the PLUS loan program.  The authors of The Color of Student Debt point out that limiting loans without replacing them with grant aid or at the very least, loans eligible for income based repayment, will cut students from low-wealth backgrounds off from college education.  As we gear up for reauthorization of the Higher Education Act, we would do well to heed the call to  pay attention to the role that the race gap in wealth (along with factors related to socio-economic status, gender, caregiving obligations and disability) plays in access to higher education.

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