New federal data show a student loan crisis for African American borrowers

Ben Miller | 10/19/2017, 6 a.m.

Two weeks ago, the U.S. Department of Education provided the first-ever look at long-term outcomes for student loan borrowers, including results by race and ethnicity.

The data shows that 12 years after entering college, the typical African American student who started in the 2003-04 school year and took on debt for their undergraduate education owed more on their federal student loans than they originally borrowed. This holds true even for students who finished a bachelor’s degree at a public institution. One reason they might not be paying down their loans? Nearly half of African American borrowers defaulted, including 75 percent of those who dropped out of for-profit colleges.

These results show that the U.S. Department of Education cannot ignore the interaction of race and student loans. Traditionally, the agency has not collected any data on the race of borrowers, except in irregular sample surveys conducted by its quasi-independent statistical arm. Unfortunately, not collecting this information has allowed for the disparate outcomes by race to go unnoticed.

Seeing even African American students who earned a bachelor’s degree struggle also reinforces that we cannot pretend the federal student loan program exists in a vacuum. The median African American household has just $1,700 in accumulated wealth. Racial discrimination in hiring has not improved over the past quarter century. Perhaps it’s too much to expect student loans and postsecondary education to solve these structural problems, but sending African American students into an inequitable adulthood with large debts from college can put them even further behind than they already started.

These are not problems that will be fixed easily. But the first step is conducting a full analysis of the problem. The Department of Education must start collecting data on the race and ethnicity of its borrowers. It should carefully review outcomes such as completion, repayment, and default by race and ethnicity within institutions to identify colleges with sizable gaps in results. Institutions with particularly awful results for racial and ethnic subgroups—such as default rates of more than 75 percent—should be further reviewed to ensure that they are not engaging in intentional discrimination. This could include recruiting people who they know will struggle to repay just so the institution can pocket students’ federal financial aid dollars or disproportionately directing financial aid to white students.

5 findings

This column presents five key findings on the new student loan outcomes data by race and ethnicity. 1. African American students are more likely to borrow than their peers: Regardless of the type of institution first attended, African American students were more likely to borrow than their peers (see Table 1) — differences that speak to the disparities in levels of financial means that African American students have upon entry. African American borrowing rates are higher than those of other students even at public institutions, which typically carry lower price tags than private options. Even at community colleges, more than 60 percent of African American students borrowed, compared with less than half of white or Latino students.

  1. The typical African American borrower made no progress paying down their loans: Borrowing for college is not inherently bad if it unlocks opportunities that are not otherwise available — and if the borrower can retire their debt in a timely manner.