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Student Loan Debt

The Student Loan Debt Crisis is Targeting Black Students

A look into why black students are at a greater risk of defaulting on their student loans and how the higher education system has not been of great assistance.

Cheyenne Majeed

The student loan debt crisis is nothing new, although recent data shows that the crisis is impacting a specific group of students the hardest. Black students at both Historically Black Colleges and Universities and Predominately White Institutions have become the primary target of the racial wealth gap due to the lack of resources black families face.

Even with a college degree, black graduates may not reap similar economic benefits as their white counterparts, raising questions about whether the rise of black students in debt is due to their economic background and racial inequality. 

“The big reason for the racial wealth gap has to do with policies of disinvestment, making properties and assets of blacks appreciate at a slower rate than those of whites,” Fredrick Wherry, director of the Dignity and Debt Network, a group of experts around the world who develop meaningful financial services for low and moderate income households, wrote in an email interview. 

The legacy of enslavement and the aftermath of economic and legal inequality is part of American history. This history still impacts African Americans in many facets of society and higher education is no different.

“I think it goes back to understanding that African Americans, while we are not new to acquiring assets and wealth, it is still relatively new for us in terms of how to manage assets and wealth. For example, African Americans really didn’t have a fair opportunity to go into the home buying market as of 50 years ago. We know real estate is a tool, in this example, for wealth—The Fair Housing Act,” said Sonia Lewis, the first African American and woman to own a student loan repayment company in the country. 

According to the Federal Reserve, The United States has $1.6 trillion in student loan debt. Data becomes limited when being able to identifiably show how much just how much student loan debt hits each racial group on the grounds of race. Credit bureaus do not analysis information based on race. On the grounds of race, gender and other protected characteristics, the Equal Credit Opportunity Act prohibits the collection of data regarding this information pertaining to racial groups. 

Instead, information used to show racial disparities upon different racial groups have been analyzed based on locations and zip codes.

Research has shown that some scholars believe racial disparities in debt can be looked at as a form of “predatory inclusion” for blacks. Although blacks have gained great access to postsecondary institutions, it has come at a cost. Blacks have made these gains on exploitative terms while their white counterparts have not had to deal with the same repercussions.  

Financially, the black experience for a college student primarily stems from the adequate or inadequate resources they have. Family wealth is one of the most important resources and factors for black youth to acquire an adequate education. It’s one of the leading driving forces when it comes to racial disparities. Most financial aid decisions are based on a parent or guardian’s income rather than their wealth. The average net wealth of a college-educated black individual is less than whites. 

The median net worth of a white individual who graduates high school or less is worth $94,500 compared to a black individual whose worth is $10,910. A white person who attends some college with no degree is worth $86,690 while a black individual’s worth is $15,600. With an associates degree a white person is worth $117,600 while a black person is worth $8,300. With a Bachelor’s degree or higher blacks are worth $68,000, in contrast, their white counterparts are worth $399,000. 

Dr. Fenaba R. Addo, professor of Money, Relationships, and Equality (MORE) in the school of Human Ecology’s Department of Consumer Science at UW-Madison, said the concern about black borrowers and the disproportional burden student loan debt holds versus white borrowers is partially due to the lack of resources and special programs to address the disparity.

“I think we need to think of some comprehensive program that only addresses some debt consolidation for those[blacks] because we know that a lot of them were preyed on by predatory services and a system that is broken, but as well as dealing with the accumulation place as well. How do we think about why black households have one tenth of a wealth of white families and what does that mean for their ability to help support their children to go to these costly colleges?,” Addo said. 

Although the student loan debt crisis has sparked much media attention and conversation, it’s still difficult for some to view student loan debt as a crisis, let alone a crisis for black youth. 

  “It does not look like a traditional debt-related crisis. Federal student loans are guaranteed so if borrowers do not pay, it will not trigger an economic tailspin like the subprime mortgage crisis. The crisis may lie in the side effects of being overwhelmed by student loan debt. Borrowers are delaying major life events including marriage, buying a home, or starting a family. Extended family members are taking on debt to pay for a student’s education. This can also take a toll on individual well-being. Some borrowers feel trapped and it goes beyond the students. This is a multigenerational issue,” Dr. Tisa Silver Canady, higher education and finance strategist, said. 

Research conducted by the Institute on Assets and Social Policy (IASP) revealed that “twenty years after starting college, the median debt of white borrowing students has been reduced by 94 percent—with almost half holding no student debt—whereas black borrowers at the median still owe 95 percent of their cumulative borrowing total.” 

When black borrowers take out a loan starting at a fairly low amount, after years out of college, they end up owing way more than they initially borrowed due to the lack of financial support offered. Although this is an issue for almost every student, regardless of race, data shows that over time it does stifle black students more heavily.

“Especially in regards to repayment, those require policy-based solutions because if a young adult doesn’t require that much debt, but is having difficulty paying it off and the systems aren’t in place to help them navigate the repayment process, there’s not much that individual can do,” Addo said. 

More policy-based solutions, in favor of blacks, are ideal to help students get out of this hole says Addo. 

Several policy proposals have been suggested from Democratic candidates for president in 2020. Bernie Sanders and Elizabeth Warrenhave made student loan debt one of their major concerns if they are elected into office. 

Addo also added, student loan debt is not easy to get rid of. “In fact, it’s hard to get rid of. You can’t discharge it in bankruptcy. An individual would have to prove undue hardship, which is almost impossible to prove in court,” Addo said. “Given the mixture of public and private funds, if you have a lot of private loans or other kinds of loans that are not the federal ones, they don’t have the same protections—the ability to put them in forbearance or defer them when you go to graduate school or something like that. These differences have very real implications for one’s financial status.” 

While this matter hurts black students generally, black students at HBCUs experience an even tougher barrier. Unlike PWIs, many HBCUs have small endowments. Many alumni of HBCUs are not able to give back in the way they may intend to due to the financial burden of paying back their student loans. 

While the short term impact of student loan debt on black borrowers is more known, long term effects are still being analyzed and studied. 

Research has been conducted to look at short term impacts regarding a student’s relationships, family decisions and mental health outcomes. For example, it has been shown that student debt makes black students more likely to drop out. Over two thirds of black students who didn’t finish college said that it was due to the high cost of college. 

“I look at wealth outcomes and if we think it’s contributing to the inability to accumulate wealth, that can (have) massive implications for long-term stability and security,” Addo said. 

Student loan debt is a common and shared experience that most students, not on scholarship, face in college. 

“There is an old quote attributed to Benjamin Franklin, something to the effect of “an ounce of prevention is worth a pound of cure.” It will become less normal as more and more students begin to break out of the habit. We have to make more informed, practical decisions about education beyond high school. It is a complex question to answer and I want to help people simplify the process and figure it out,” Dr. Canady said.

Dr. Canady suggest to help break this cycle black people learn about money and how to advocate for themselves. “Once you learn, teach others and mobilize. Invest in continuing financial education. Learning does not have to take place in school nor cost you money. There are plenty of free financial education resources online through federal government entities such as the Consumer Financial Protection Bureau (consumerfinance.gov), the Federal Trade Commission (ftc.gov) and the U.S. Department of the Treasury (treasury.gov),” Canady said.