Growing Racial Disparities in Student Debt

Consumer advocates say a Brookings study highlights the need for comprehensive federal data on the relationship between college loan debt and race.

October 21, 2016
 

A new study released by the Brookings Institution finds disparities in student debt levels for black and white borrowers grow after graduation, a trend partly attributable to higher enrollment rates for black students in graduate programs, especially at for-profit institutions. That jump in enrollment is linked to higher federal borrowing rates introduced in 2006 and the weak job market -- especially for black college grads -- after the 2008 recession.

Graduate enrollment is a worthwhile investment, the study finds, but comes with more financial risk for African-American students both because of their concentration in the for-profit sector and because of lower rates of graduation.

The study, written by Judith Scott-Clayton, a Columbia University associate professor of economics and education, and research associate Jing Li, is based on data from two nationally representative surveys conducted by the U.S. Department of Education of college graduates from 1993 and 2008. It calls for comprehensive data tracking student financial aid and debt by race and argues that focusing policy on undergraduate borrowing alone will address only part of the racial disparity in student debt. A number of scholars and advocacy groups are pressuring the federal government to begin tracking borrowers by race to aid research into the causes or size of racial disparities.

The Brookings report acknowledges that lack of adequate data could lead to understatements of actual racial disparities in student loan debt. Information on amounts borrowed, future earnings and loan defaults cannot be broken down by race, the study says, and information on race is not collected on the Free Application for Federal Student Aid or the National Student Loan Data System, meaning researchers and policy makers don’t have information on racial disparities for those who take out debt and leave college without a degree -- a group especially likely to default on student loans.

Among the key findings of the study:

  • Almost half of black graduates owe more on their federal undergraduate loans four years after leaving college than they did immediately after graduating, more than double the rate of white graduates.
  • Black borrowers have a default rate of 7.6 percent within four years -- three times the rate of white graduates.
  • Black graduates with debt are more likely than white graduates to have interest accumulate faster than they pay off the balance of a loan.
  • Borrowing for graduate school accounts for 45 percent of the black-white student debt disparity.

The study also argues that income-driven repayment plans treat the symptom of the racial debt disparity without addressing the underlying causes.

“What was shocking was the magnitude of the debt four years after graduation. It’s huge,” said Scott-Clayton.

Debt shouldn’t be seen as a bad word, she said, but the study indicates that the system isn’t working the same way for everyone.

The study suggests that black graduates from the class of 2008 may have enrolled in graduate school at substantially higher rates than other groups did because of weak job markets. And more than a quarter of those graduate students enrolled in for-profit institutions, compared to 9 percent for white college graduates.

“That just begs the question what is going on in that sector,” Scott-Clayton said.

Robert Kelchen, an assistant professor of education at Seton Hall University who focuses on higher education finance and student aid, said the study is revealing of the large role graduate student loan debt plays in racial disparities.

He said he had mixed feelings about collecting data on student borrowers’ race because asking about race on a form like the FAFSA could cause some students to think they would be eligible or ineligible for aid because of their race. The department would need to explain to borrowers that that information would not affect whether they received aid, Kelchen said.

But he said the only source of such data now is through national surveys with limited scope.

“It highlights the need for more data on student lending in general,” Kelchen said.

Pauline Abernathy, executive vice president of the Institute for College Access and Success, said the study underscores the need for the Department of Education to collect institution and student level data on student borrowers. TICAS was among 40 consumer advocacy and civil rights groups that sent a letter to Education Secretary John B. King Jr. in August asking that the department start collecting the data.

“It stands to reason that the disparities for more recent students could be even greater than what is in this report,” Abernathy said.

Read more by

Back to Top