A college degree is sold to Americans as a path to a better life, but new data indicates that the way we finance college degrees may exacerbate inequalities.
Twelve years after entering college during the 2003-2004 academic year, 21% of black student loan borrowers who graduated with a bachelor’s degree defaulted on their debts, according to an analysis of government data by Judith Scott-Clayton, a professor of economics and education at Columbia University’s Teachers College. But just 18% of white borrowers who actually dropped out of school defaulted 12 years after entering.
The findings are part of a report indicating troubling trends among the broader student loan borrower population. Scott-Clayton’s findings suggest that by 2023, 40% of borrowers who entered school during the 2003-2004 academic year will have defaulted on their debts. But the analysis highlights particular distress among certain groups of borrowers: Black students and those who attended for-profit colleges. Another irony: In many cases, those two groups overlap.
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Here are some of the reasons for the differences in default by black and white borrowers:
The racial wealth gap
There are a variety of reasons why black borrowers struggle more with their debt on average. For one, the racial wealth gap means they’re less likely to have access to family wealth to to finance their schooling. In many cases, they need to borrow more and they have fewer external sources (like wealthy parents or benefactors) to draw from when repaying their loans. But Scott-Clayton notes that parental income and education don’t totally explain the challenges black borrowers face.
Discrimination in the labor market
One major factor is likely racism in the labor market , Scott-Clayton said, which means that black borrowers — even those who are college graduates — will struggle more than white borrowers to get a job that pays enough to help them pay down their debt. Twelve years after leaving school, black student loan borrowers have $43,372 in debt on average -- four times the $10,301 of white borrowers, Scott-Clayton’s research shows.
The loan-servicer problem
Among borrowers with relatively small levels of debt, who ultimately repaid their loans, black borrowers are more likely to default on their way to repayment than white borrowers, Scott-Clayton said. Student loan companies may not be serving black borrowers as well as white borrowers, she said. “We know in other sectors of debt and loan management that there are differences in the way people are treated,” Scott-Clayton said. And if she were a government watchdog? “I would be very concerned, are black borrowers getting the same service that other borrowers are getting?”
The for-profit college issue
Black borrowers are more likely to attend for-profit colleges than white borrowers. Scott-Clayton’s research adds to other evidence that students who attend for-profit colleges have worse outcomes. Of students who entered a for-profit college in the 1995-1996 academic year, nearly 24% defaulted within 12 years, compared to about 8% of students who never attended a for-profit. That number jumps to 47% of students who ever attended a for-profit college and entered school in the 2003-2004 academic year.
Other analyses typically lump outcomes for community college students and students who attended for-profit colleges together, but Scott-Clayton says if you separate them — removing students who began at a community college and transferred to a for-profit college — default rates at community colleges would be much lower. “Everybody is aware that the outcomes are worse there,” Scott-Clayton said of for-profit colleges. “But this really brings it into relief.”
The findings come as stakeholders and policymakers are considering changes to two Obama-era rules that aim to hold for-profit colleges accountable for student outcomes. This research adds important context to that conversation, Scott-Clayton said.
“These data show that there is something different about the for-profit sector, it’s not like people are just picking on them randomly,” she said. “What really breaks my heart and makes me angry is to think of the student who has a really horrible experience at a for-profit, and has a bad outcome as a result, defaults on their loan, and thinks that it’s their fault.” What they don’t realize: They’re part of a much broader problem.