Study: Student Loans Weigh the Heaviest on Black and Hispanic Students

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minorities and student loans

Student loan debt weighs more heavily on students of color than on their white counterparts.

An estimated 86.8% of black students borrow federal student loans to attend a four-year public college, as opposed to 59.9% of white students, according to the National Center for Education Statistics (NCES).

With rising tuition costs outpacing inflation and wage growth, many students are struggling to afford college. In fact, about 44 million Americans owe over $1.48 trillion in student loan debt.

But according to our in-depth analysis of data from Demos and NCES, black and Hispanic students are paying more when it comes to student loans than white students.

Key findings: Students of color carry the most student debt

  • Black students borrow federal student loans at higher rates than other groups of students. An estimated 77.7% of black students borrow federal student loans to pay for a higher education. This figure is significantly higher than the national average for all students (60%) and for white students (57.5%).
  • Among class of 2012 graduates, Hispanic and black students graduated with higher amounts of student debt from private nonprofit colleges than white students. Black students also borrowed more at public colleges than white students.
  • Among black students who started school in 2003, 1 in 2 defaulted on student loans within the following 12 years. Black students also saw their starting balance grow by a median 113% in that time frame. The rates of default were lower for Hispanic (36.1%) and white (21.5%) students.

77.7% of black students borrow federal student loans to pay for college

When the NCES looked at rates of student loan borrowing by race and ethnicity, it uncovered an undeniable fact: Overall, black students are more likely to take on debt to earn a higher education. This is true at public and private, two-year and four-year, and for-profit and nonprofit schools.

The disparity is greatest at public four-year colleges, where black students borrow at a rate of 86.8%. Across all types of colleges, black students borrow at a rate of 77.7%, a figure significantly higher than the overall average of 60%.

Hispanic students also borrow at relatively high rates: 65% at public four-year colleges and 73.5% at private four-year colleges. However, Hispanic students borrow at a lower rate (39.9%) for public two-year colleges compared to white (46.4%) and black (62.5%) students.

“Not only are students of color more likely to borrow more for a degree, and borrow in higher amounts for the same degree, but they’re more likely to struggle to repay student loans than white students,” said Mark Huelsman, a senior policy analyst for Demos. “Students of color are also overrepresented at for-profit colleges and universities which account for a very large proportion of student loan defaults.”

The rates of borrowing across all groups are high at for-profit colleges. This is a worrisome fact in light of the questionable practices of some for-profit schools. Students who go into debt for a for-profit institution might graduate without the qualifications or skills training they were promised.

Black students also graduated with the highest amount of debt from public colleges in 2012 — $29,344, on average. Hispanic students, though, had the highest burden among those who attended private colleges, with an average debt of $36,266.

These numbers are likely even higher today. The average college graduate in the class of 2016 left school owing $37,172. As tuition rates continue to rise, students are going into greater debt to pay for their degree.

High student debt goes hand in hand with low income

No discussion of student debt and race would be complete without a look at household income.

“We cannot think of student loan debt in isolation from other areas of our economy,” said Huelsman. “For example, long-standing racism in the labor market has resulted in a country where black families with college degrees have lower average net worth than white families with a high school education or less.”

Twenty years ago, white households held a net worth seven times that of black households and six times that of Hispanic households, according to Demos data that Huelsman noted. After the recession, that disparity increased to 13 times and 10 times, respectively.

Dr. Robert Kelchen, an assistant professor in the Department of Education Leadership, Management, and Policy at Seton Hall University, discussed how students of color can be affected by economic inequality.

“The big issue is the large wealth gap between minority and white families,” Dr. Kelchen said. “It’s a lot harder to repay loans when nobody in your family can help you pay them off. Unemployment rates also tend to be higher for black and Hispanics, which makes repaying loans more difficult.”

The graph above shows the difference in median household earnings among races. Black households earned $39,490, Hispanic households earned $47,675, and white households brought in $65,041. Asian households had the highest median income at $81,431. Correspondingly, Asian students had the lowest rates of borrowing for college.

The unequal burden of student loan debt further aggravates disparities, since a big loan payment can make it difficult to build your career, grow your income, and achieve financial independence.

In 2014, among workers aged 25 to 34 who held a bachelor’s or higher degree, black households earned 23% less than the median for the overall population. Hispanic households earned 25% less.

If you’re struggling to make payments on federal student loans, speak to your loan servicer about your options. You could go on an income-driven repayment (IDR) plan, enter forbearance, or even pursue student loan forgiveness options.

Although these solutions don’t address the root problems that lead students into debt, they can help you manage your situation and avoid student loan default.

Indebted black students have the lowest graduation rates

While black students are more liable to borrow to pay for college, they also have the lowest graduation rates.

Among bachelor’s degree-seeking students entering a four-year program in 2008, just 21% of black students graduated from college in four years. Compare that to the 30% of Hispanic students, 44% of white students, and 48% of Asian students who graduated within that time frame.

According to The New York Times, the cost of college is a major obstacle to graduating on time. Many students can’t afford to continue or become overwhelmed from working long hours while studying for a degree.

Along with unequal graduation rates, we also see differences in educational attainment from adults aged 25 and older. The greatest number of bachelor’s degree holders are white and Asian.

Since a bachelor’s degree can boost earnings significantly over your lifetime, not having one can aggravate inequities among racial and ethnic groups.

Nearly 50% of black students default on their student loans

Student loan defaults are on the rise. The Wall Street Journal reported that the number of Americans in default on student loans reached 4.6 million in the third quarter of 2017.

NCES took a long-term look at the rates of default among students who started college in 2003. It found that nearly 1 in 2 black students had defaulted on a student loan within 12 years of starting school.

Among Hispanic students, the rate of student loan default was 36.1%. Among white students, the rate of default was 21.5%.

“Underrepresented minority students are far more likely to default on their student loans than are white and Asian students, even when conditioning on the type of college they attended and whether they graduated,” said Dr. Kelchen. “Minority students tend to have higher debt burdens and have more difficulty paying these loans off than other students.”

If you’re in danger of defaulting, switching to an IDR plan on your federal loans could help.

“If someone signs up for this program and loses their job, they likely won’t have to make any payments while not going into default,” said Dr. Kelchen. “Be warned that the paperwork for these programs can get tedious, so start it early and reach out to your student loan servicer or your former college for help if needed.”

That being said, signing up for an IDR plan could mean your student loan balance continues to grow. That could leave you in debt longer, even if you could eventually earn student loan forgiveness.

Additionally, black students owed a median 113% of their original balance after 12 years of starting school. White and Hispanic students also had more than half their debt left after 12 years.

Student loans get in the way of building wealth

Student loan debt stands in the way of homeownership and saving for major life goals. An estimated 64% of bachelor’s degree-holding households without student debt own a home. Among degree-holding households with student debt, only 53% own a home.

Further, those with a bachelor’s degree but no education debt have saved an average of $98,687 for retirement. Bachelor’s degree recipients with loans have less than half of that with an average savings of $42,751.

However, those with student debt that didn’t finish college have only saved an average $25,510 for retirement. This shows that while a college degree could set you back financially, it might still be worth the cost.

“Whereas workers could once rely on employer-sponsored pensions to cover their retirement savings, we now have a system in which most people must save for their own retirement in addition to meeting all of these other costs, monthly student loan payments included,” said Huelsman.

“For communities with less wealth, it takes a major toll,” he continued. “The result is that many of the trends that created racial inequality in our economy have only expanded.”

Although a bachelor’s degree still corresponds with higher earnings and assets, its value is undercut if you have to take out student loans.

It also doesn’t help that wage growth has stalled.

“Wages have stagnated for the vast majority of American workers,” Huelsman said. “Employers have engaged in fewer job training opportunities, and other costs in our economy (child care and healthcare to name a few) have increased nearly as much as the price of college.”

How borrowers can overcome the burden of student debt

When you break down student loan debt by race and ethnicity, the disparities within this national burden become clear.

If you’re a student loan borrower, educate yourself by seeking out financial resources to help you deal with your student debt. American Student Assistance, for example, offers free student counseling services.

You can also check out guides on how student loan interest works and how to choose the right repayment plan. The sooner you learn how to manage your student loans properly, the easier it’ll be to pay them off later.

Methodology: This study relied primarily on data from the NCES and Demos. For data on borrowing and default rates, and on the ratio of the amount owed to borrowed, NCES tracked students who had federal student loans and who started college in 2003 for 12 years. NCES also looked at graduation rates among the entering college class of 2008.

Demos data on average debt upon graduation was based on bachelor’s degree recipients in the class of 2012. Its investigation into household debt and assets for those with and without student loans was based on a 2013 survey of consumer finances by the Federal Reserve. This study also used 2014 NCES data on median annual earnings and 2016 U.S. Census Bureau data on median household income by race.

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.