WHY WE'RE MORE LIKELY TO DEFAULT ON OUR STUDENT LOANS [HINT: IT AIN'T BECAUSE WE TRIFLING]

By now, many — if not most— of us are at least vaguely familiar with the basic size and scope of what has been referred to as “the student loan crisis.” But just in case you’ve been overloaded with data and your bandwidth has been exceeded, here’s a quick listing of some of the specifics on student loans:

• 43.5 million people are on the hook for a student loan, with the total amount of student loan debt currently clocking in at $1.63 trillion.

• The average student loan debt is about $38,000, and that’s more than twice the amount it was in 2007

• Student loan debt is now 10% of total household debt, making it the second largest category of consumer debt—right behind mortgage debt.
  

• At the end of 2021—before the student loan repayment pause— 7% of all student loan borrowers were in default. That works out to be about 3 million borrowers had gone at least 270 consecutive days— 9 months— without making a payment

These data are aggregated and, as a result, masks key differences that exist between different groups—as well as whether those differences are abating over time. Peering beneath the surface, for instance, reveals the existence and persistence of a gaping chasm between the experiences of White and Black student loan borrowers.

When we do this, when we peel back and peer beneath the layers, we see that the student loan crisis is particularly acute for Black borrowers.

When we do this, when we scrutinize the data on student loans, we see that historic and contemporary racial oppression impacts the ability of Black borrowers to dig themselves out from under the relatively large amounts of student loan debt that’s perched on their shoulders.

Don’t get me wrong. I’m not arguing against the idea that there’s a general crisis in student loan debt; rather, I’m making the claim that that crisis is particularly acute for Black borrowers.

Case in point: The racial gap in defaults on student loans.

THE RACIAL DIVIDE IN STUDENT LOAN DEFAULT RATES

Large and growing default rates are one of the more salient signals of a student loan crisis. Typically, you’ve got to go 270 consecutive days— 9 months— without making a payment before you’re officially placed in default.

Defaulting on a student loan—or any loan, for that matter— will make it more difficult to secure credit in the future, jam up your job prospects, make it difficult to rent a decent crib and, more generally, just jack your credit up real good.

Serious stuff, right?

Well, if the data is clear on anything, it’s clear on this: There’s a yawning gap between Black and White default rates on student loans—and, if anything, the gap is getting wider, not shrinking.

A study by the Center for American Progress, for instance, examines default data for students who first enrolled in college in 2003-2004. One of the things the Center finds is that twelve years after their initial enrollment 50% of Black borrowers had defaulted on at least one of their student loans, compared to “just” 21% for their White counterparts. Black borrowers, in other words, were more than twice as likely as White ones to default.

What’s more, the Center’s analysis indicates that the racial gulf in default rates is even present amongst those who successfully secure the bachelor’s degree: Twelve years after attaining their degree, almost a quarter (23%) of Black borrowers with the B.A. were in default, compared to “only” 6% of Whites who borrowed money while completing the bachelor’s degree.

A recent study by the Federal Reserve Bank of New York also underscores the existence of a particularly sharp distinction between the default rates of majority-Black and majority-White zip codes. According to the New York Fed, the student loan default rate in majority-Black zip codes is almost twice as high as that in majority-White zip codes— 17.7% versus 9%.

And—to cite one more example of the racial divide in default rates— economist Judith Scott-Clayton tracks and compares racial default rates among two different cohorts or generation— those whose initially enrolled at a 4 year college in 1996 versus those who initially enrolled in 2004. Scott-Clayton, among other things, zeroes in on the percentages of each group that defaulted on their loan(s) within twelve years of their initial enrollment date.

What Scott-Clayton finds is this: For those who enrolled in 1996, twelve years later the default rates for Black and White borrowers were 23.4% and 7.4%, respectively. Amongst those who enrolled in 2004, however, the Black and White default rates had climbed to 37.5% and 12.4%, respectively. In other words, the “racial spread” is default rates increased from 16 to 25 percentage points. Judged by the “spread,” then, the chasm between Black and White default rates may actually be widening, not shrinking.

All of this, of course, raises a number of questions, with one of the most pressing one being:

Why are Black borrowers much more likely than White ones to default on their student loan?

What’s up with that?

WHAT’S UP WITH BLACK BORROWERS BEING MORE LIKELY TO DEFAULT ON STUDENT LOANS?

What’s up with that, is this:

The racial divide in default rates cannot be sufficiently understood in isolation from the myriad ways in which historical and contemporary racial oppression continues to shape the experiences of Black and White borrowers.

If it helps, think of it this way:

One of the cumulative effects of racial oppression is the existence of a wide racial divide in wealth. That racial divide is evidenced by the fact that the median wealth by White and Black households is $188,200 and $24,000, respectively. The median wealth of White families, then, is eight times as much as that of the median Black household.

This lower net worth means, among other things, that if Black students are going to pursue post-secondary education they—and the households of which they are members— will have to borrow, and borrow more often, to bring their dreams of a college degree to fruition. Black households are simply less likely to be able to tap into and liquidate assets in order to help defray some of the costs associated with college.

Given this, the following results from recent research are hardly surprising:

• Black college-goers borrow more—and more frequently— than their White counterparts. According to recent data from the Board of Governors of the Federal Reserve System, Black borrowers took out the largest amount of federal student loan money in 2019: On average, Black students borrowed $45,000, compared to $40,000 for Whites.

• Black families borrow student loans at higher rates than other groups: In 2019—the most recent data published by the Survey of Consumer Finances— 30.2% of Black families hold student loan debt, compared to 20% of their White counterparts.

• The racial disparity in student loan debt is both large and growing. Black college students graduate owing $7,400 more than White college graduates. Four years later, though, this racial disparity in debt has ballooned to $25,000. Within a mere four years, in other words, the racial gap in student loan debts has more than tripled.

• Black borrowers find it more difficult to dig themselves out from under student loan debt: Four years after graduating, 50% of Black borrowers owe, on average, 12.5% more than they borrowed. In contrast, four years after graduation, “only” 17% of White students owed more than they borrowed.

And— to cite one more example— Addo, Houle, and Simon found that, by their mid-twenties, Black college-going young adults had accumulated twice as much student loan debt as their White counterparts. As Houle and Addo write in a recent and extremely important text: “Put in dollar terms, if the average white debtor owed $22,000, we would expect a comparable Black young adult to owe $43.516.”

To reiterate, growing inequality and a shifting of the increasing costs of education to students and their parents interacts with the racial gap in wealth to help produce a situation where Black households and students are more likely than their White counterparts to have to borrow to pursue post-secondary education.

The greater amount of money borrowed by Black households puts their balance sheets out of wack and, as result, makes them particularly vulnerable to the risk of default.

All of this, by the way, is compounded by the fact that, after entering repayment, the typical Black borrower has a decidedly different labor market experience than that of the typical or average White borrower. More to the point, racial oppression in the labor market contributes to elevated levels of Black joblessness, more unstable employment, lower earnings, and fewer opportunities for advancement on the job.

As one scholar notes:

“Regardless of educational attainment by Black workers, they typically have a higher rate of unemployment than their White college-educated counterparts…While college attainment helps all workers get more access to better-paying, stable jobs with better benefits, the advantages are not evenly distributed. Black workers, no matter their level of education, still face impediments in the labor market—employment discrimination, occupational segregation, and unequal pay.”

On this point, it’s useful to point out that not only is the Black twice as high as the White unemployment but, although overlooked, the jobless rate of Black college graduates is substantially higher than that of college educated White workers.

What’s more, Black college graduates are much more likely to be underemployed; more likely, that is, to be in jobs that actually don’t require a college degree. One study estimates that 40% of college educated Black workers are in gigs that don’t actually require a college degree. The comparable number for Whites was found to be 31%—high but still substantially below the underemployment rate for their Black counterparts.

The long and short of it is this, and bears repeating: Historical and present day racial oppression is one key to “explaining” the wide racial gap in default rates. The effects of racial oppression show up, among other ways, in the relatively lower net worth of the average Black household, as well as in racial differences in key metrics of labor market health. And, given that all of this is taking place in an overall economic environment characterized cost shifting to individuals and rising inequality, it should come as no surprise that there’s a large gap in the default rates of Black and White student loan borrowers.

Oh, and one more thing:

It ain’t got nothing to do with us being more trifling than White folk.