Economy

Why the Racial Debt Gap Is About More Than Financial Aid

You may think there are racial inequalities in student loan debt, but the reality is much worse.

That's according to a recent report from the Brookings Institution, which shows that the difference in student loan debt between Black and white graduates — about $7,400 — more than triples over the next four years because of the difference in repayments and borrowing. After four years, the gap between Black and white borrowers is nearly $25,000 on average.

Previous studies have found a discrepancy between students of color and white students in terms of borrowing, defaulting, and late payments. But he new report found that things are even worse:

“New evidence that racial gaps in total debt are far larger than even recent reports have recognized, far larger now than in the past, and correlated with troubling trends in the economy and in the for-profit [college] sector."

The underlying issue behind the gap is systemic racism, the report suggested.

Even helpful repayment plans cannot alone overcome “historical discrimination (leading to low parental wealth), ongoing racial bias in the labor market, or predatory recruitment by for-profit institutions," the report said.

Researchers have consistently found discrimination in the labor market: Researchers have sent out resumes that are identical except for race and have uncovered such discrimination.

  • Black Millennials must achieve two educational levels higher than their white counterparts to compete equally in the labor market.
  • A significant portion of the debt Black graduates accrue comes from for-profit graduate schools, the Brookings report found.
  • Unemployment rates for African-Americans, whether college graduates or not, have often been twice as high as that for European-Americans.
 

A lack of data limits how much researchers can explain why students from different backgrounds fare the way they do.

Neither the Free Application for Student Aid nor the National Student Loan Data System, which tracks debt and repayments, collect information on race.

The Department of Education only conducts cross-sectional surveys on the subject every four years.

A bloc of more than 40 civil rights, legal aid, and advocacy groups sent a letter to Secretary of Education John King Jr. in August speaking to this issue:

"For nearly a decade, the Department of Education has known that student debt impacts borrowers of color differently from white borrowers. Yet in that decade, the Department has failed to take sufficient steps to ameliorate the disproportionately negative impact on borrowers of color, or even to conduct further research to discover the causes or the extent of disparities. We call on the Department to collect and release the data necessary to learn the true extent of the impact of student debt on communities of color and to work with borrower and consumer advocates to ensure that student loans are a tool for economic advancement and not economic devastation for borrowers of color."

Young Invincibles, a Washington-based nonprofit focused on empowering Millennials, was a signatory to the letter. “Challenges facing minority students today impacts the economy at large," said Tom Allison, Deputy Director of Policy and Research at Young Invincibles, citing a study that found that 65 percent of jobs in 2020 would require a post-secondary education.

The Department of Education “deserved a lot of credit for the work they've done," such as creating the College Scorecard, Allison said. But Congress has limited the department's ability to track data with the Student Unit Record Ban. The provision, added in the 2008 reauthorization of the Higher Education Act, hampered the department's ability to collect specific information on students for a database.

Allison called the ban "the most impactful and infuriating paragraph in the U.S. legal code."

 

"Policy-makers are largely in the dark about how policy [decisions] specifically impact underrepresented minority students, but minority students themselves ... don't have the quality outcome information they need to make an informed decision," Allison said.

The Young Invincibles has called on Congress to overturn the Student Unit Record Ban.

Allison said that he hopes a reauthorization of the Higher Education Act, which expired in 2013, will allow a doubling of the maximum award from Pell grants — from which students of color disproportionately benefit — and simplify repayment plans so that student are less likely to default or have delinquent payments. The racial gap in student debt represents the "impact of centuries of discrimination," he added.

"One of the reasons why students of color are borrowing at higher rates in the first place is because they are coming from families of lesser means generally," Allison said.