Why Black Student Loan Borrowers Fall Behind More on Payments

Black college graduates owe $7,400 more on average than their White peers when they earn their bachelor’s degrees, according to analysis by Brookings, the think tank.

Source Keith Bedford/The Boston Globe via Getty

Why you should care

While some Americans are prospering, many young college graduates find themselves falling behind.

The U.S.’s $1.5 trillion student debt mountain is rapidly rising up the political agenda as economists warn that the borrowings are impairing individuals’ ability to buy homes and start businesses, and are disproportionately affecting poorer and minority students. Recently, technology investor Robert F. Smith promised to pay off the student loans of the graduating class of Morehouse College, a historically Black college in Atlanta, in a move that intensified the debate about the impact of student debt on African Americans.

Black college graduates owe $7,400 more on average than their White peers when they earn their bachelor’s degrees, according to an analysis by the Brookings Institution, a Washington, D.C.-based think tank. But according to a recent Federal Reserve report, that’s not the only racial gap.

Young Black student loan borrowers are four times more likely to fall behind on their payments than White student loan borrowers.

Some 28 percent of Black individuals ages 18 to 29 who took out loans to pay for their education have fallen behind on payments, compared with just 7 percent of Whites, the Fed found in its annual Report on the Economic Well-Being of U.S. Households. Some 15 percent of Hispanic borrowers were struggling with payments.

The findings are based on a survey of 11,000 adults in 2018. They show that student loan difficulties are more acute among those who attended for-profit institutions rather than public and nonprofit colleges. First-generation students were twice as likely to struggle with payments as those who have a parent who went to university. The share of Black student loan holders who are up to date on payments was lower than the previous year’s report — despite the continued improvement in the U.S. economy.

Democratic contenders for the presidential nomination have been seeking to demonstrate they would address the problem. Massachusetts Sen. Elizabeth Warren, for example, has said she will offer debt relief for those earning less than $100,000, while Bernie Sanders, the Vermont senator, has proposed making public college tuition-free. Meanwhile, the Trump administration has watered down some Obama-era regulations that were aimed at protecting student borrowers who attended for-profit colleges.

 

For-profit colleges have been at the center of many of the concerns about student debt, in part because degrees earned there may not confer the same advantages in the labor market as those earned at other institutions. More than one-fifth of borrowers who went to private for-profit schools were behind on their loan payments, the Fed study found, compared with 8 percent who attended public institutions and 5 percent who attended private not-for-profit institutions.

Thursday’s report showed Americans are in generally strong financial health thanks to the near-record-long economic expansion. When asked about their overall economic well-being, three-quarters of U.S. adults said they were “doing OK” or “living comfortably.” That’s a 12 percentage point improvement from 2013.

“As this report shows, we continue to see the growing U.S. economy supporting most American families,” says Michelle Bowman, a governor on the Federal Reserve Board.

“At the same time, the survey does find differences across communities, with just over half of those living in rural areas describing their local economy as good or excellent compared to two-thirds of those living in cities. Across the country, many families continue to experience financial distress and struggle to save for retirement and unexpected expenses,” Bowman says.

But the report showed many Americans are still in a vulnerable financial state. Faced with an unexpected expense of $400, four in 10 of those surveyed said they would need to borrow or sell something to pay it off, or would not be able to cover the expense at all.

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By Sam Fleming

OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2019.

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