What is going on with student loans and Black borrowers?
A few weeks ago, for the first time ever, the U.S. Department of Education released a report on long-term outcomes for student loan borrowers. The findings were also broken out results by race and ethnicity, and according to an analysis by the Center For American Progress, the news is not good for Black student loan borrowers. Looking at a cohort of students who entered school in the 2003-04 academic year through 2015 – a 12 year period – the numbers tell us that Black student loan holders are struggling.
What stuck out most in the report?
There are several troubling findings. First, many Black borrowers are not making progress on their debt. In fact, 12 years after entering college, the median Black student loan borrower’s loan balance was higher than the amount they originally borrowed. This was not the case for the typical Latino and white student, who were making progress paying down their loan. And this problem is getting worse. The median Black student in this report owed 113 percent of what they originally borrowed. For the median Black student loan borrower who started college in 1995, that number was 101 percent.
On top of loan balances, there is a default crisis impacting our kids. A full 49 percent of Black students who took out loans for their undergraduate education defaulted on a federal student loan. Even success does not insulate Black students. Twenty-three percent of Black borrowers who earned their undergraduate degree defaulted on the loan, compared with just 9 percent of borrowers overall.
What is driving Black borrowers to struggle with student loans?
Several factors contribute to the challenges Black student loan borrowers face. First among them: Black students are more likely to borrow than their peers, and more likely to have to borrow more. This is directly related to the wealth gap we have talked about before. Without the same financial resources and support as their peers, student loans are often the only way to bridge the gap. Nearly 80 percent of Black students enrolled in an undergraduate program have taken out student loans in one form or another.
Does this mean that going to college is too risky?
No, I am not suggesting that going to college is a bad idea. Black Americans with college degrees earn 50 percent more an hour than those with some college. Not to mention, the unemployment rate for Black college graduates is more than 5 points lower than that of Black high school graduates. It does tell us that much work remains to be done, both on the policy front and on the personal front to ensure that college expenses are not setting Black students back financially.
What can be done about this problem?
From a policy perspective, lawmakers and administrators need to review loan and academic policies. The analysis by the Center for American Progress suggests a few actions that can be taken. First, the Department of Education should review results for students of color to ensure lenders and schools are not engaging in intentional discrimination, such as disproportionately directing financial aid to white students or targeting students of color for higher loan balances.
Policymakers also need to consider if policies are having unintended consequences. One example is financial aid requirements that disproportionately result in Black students losing their aid, forcing them to borrow.
From a personal perspective, preparation is key. Saving for college ahead of time. Taking advantage of scholarships and grants so that our young people do not have to take out student loans. These actions, while very basic, can mean the difference between manageable student loan debt and financial doom.
Mellody Hobson is President of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.