8 Ways You Didn’t Know Student Loan Debt Is Crippling the Black Community

Higher Percentage of Black Students Rely on Student Loans About 81 percent of African-American college students borrow money, compared to 67 percent of Latinos, 65 percent of whites, and 54 percent of Asian-Americans, according to public policy website Demos.org. Because Black students tend to borrow more, coupled with other pre-existing socioeconomic inequalities, they are at a severe disadvantage when compared to other groups. Black Students Have Higher Student Loan Debts The Center for American Progress, an independent and nonpartisan educational institute, reported in May 2013 that today’s average college graduate holds $26,600 in debt when he or she graduates, but the numbers for Black student-loan borrowers are even more troubling. A 2010 study by the College Board Advocacy & Policy Center found that 27 percent of Black bachelor’s degree recipients had student-loan debt of $30,500 or more, compared to just 16 percent of their white counterparts. These borrowers and their communities will be affected for years to come as they attempt to buy homes, open businesses, and begin families. This is because households with higher levels of education debt will suffer larger lifetime wealth losses, says Demos.org. More Risky Private Loans With Higher Interest Rates Black students take out more risky unregulated private student loans at a higher rate than white students, making them more financially vulnerable to dangerously high interest rates. Americanprogress.org reported in 2008 Black students had the highest private student-loan participation rate, even though only four years earlier, they entered into private loans at lower rates than both white and Latino students. Rising interest rates on student loans leave Black borrowers struggling to make payments on time, often leaving them facing unforeseen fees for deferment or forbearance—processes that can prevent or delay loan payments. These processes may make it easier for Black borrowers to pay monthly, but they also make loans more expensive in the long term after the fees are tacked onto the increasing interest payments that may have accrued. The burden of student loan debt is carried long after graduation, forcing borrowers to delay homeownership and retirement savings as they pay off their loans. Student Loan Debt Negatively Impacts Economy The debt is not only prohibitive to individual borrowers, it also hampers their families, communities, and the economy at large. Past-due payments on loans lead to plummeting credit ratings, lower wages, and loss of tax refunds to offset the debt. Since Black students borrow more money at higher interest rates to finance their college expenses and have higher rates of unemployment after graduation, it is no surprise that African-Americans are more likely to experience the negative impact of student loan debt. This causes a ripple effect throughout the economy of the Black community as fewer graduates have the means to start or support businesses. In addition, first-time homebuyers are essential to the housing market, however for those with significant student debt, the debt-to-income ratio puts homeownership out of reach. Chris Harrison wealth gap illustration Student Loans Increase the Wealth Gap The wealth gap between the Black and white communities is further exacerbated by the loan burden facing young Black borrowers. People with significant education-loan debt are less likely to participate in wealth building mechanisms such as 401(k)s and other retirement savings plans. Reports show the lack of opportunity to spend more on long-term savings results in less wealth accumulation in the Black community. Student Loans Threaten the Financial Stability of Descendants of Borrowers Asset and wealth building occurs over generations, providing communities with economic stability. When barriers such as significant debt hinder young people from saving and building wealth, it can have a long-term effect on their children and grandchildren. From 1999 to 2007 the Urban Institute estimates that the median net worth of Black families was $18,181, compared to $33,619 for Latino families and $122,927 for whites. These gaps are caused by lower asset possession over multiple generations in communities of color. Lower Graduation Rates American Progress reports that students of color are also more likely to enroll in for-profit schools — the payments for which currently account for nearly half of student-loan defaults. For-profit colleges and universities tend to have higher tuitions, higher dropout rates, and higher occurrences of insurmountable debt for students, according to the article. This puts economic and academic barriers on students of color by reducing college affordability and shifting more of the financial burden onto students and away from college institutions . This can cause lower graduation rates for Black students facing financial difficulties. American Progress wrote that 69 percent of Black students who did not finish their college degree cited the high cost of tuition, compared to 43 percent of their white peers. Changes to PLUS Loan Program Hurt HBCUs A small change in the government's credit check criteria has reduced the number of parents approved for the Federal Plus Loan program and threatens many historically Black colleges and universities with financial crisis, according to NPR.org. Cheryl Smith, senior vice president for public policy and government affairs at the United Negro College Fund (UNCF), said during a 2013 panel discussion that PLUS loans are a "critical piece of the financing package" for low-income students. Of all students attending HBCUs, Smith said, 74 percent are eligible for Pell Grants, which is an indication of financial need. An increase in Parent PLUS Loan denials contributed to a drop in student enrollment at many HBCUs, including Howard University, Morehouse College, and Morgan State University, according to NPR and USnews.com.

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