The Disproportionate Burden of Student-Loan Debt on Minorities

Elizabeth Warren takes on the worrisome problem that’s contributing to racial inequality.

National Journal
Sophie Quinton
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Sophie Quinton
May 5, 2015, 8:37 a.m.

When Eli­jah Cum­mings ar­rived at Howard Uni­versity as a fresh­man, all he had was a suit­case and two trash bags full of clothes. “Boy, you’ve come here to get an edu­ca­tion now,” Cum­mings re­calls his fath­er telling him. His fath­er was a former share­crop­per with a third-grade edu­ca­tion. After gradu­at­ing from col­lege in 1973, Cum­mings went on to be­come a law­yer and a U.S. con­gress­man.

The Mary­land Demo­crat came back to Howard last week, and brought Sen. Eliza­beth War­ren with him to talk about stu­dent loans and so­cial mo­bil­ity. The two law­makers be­lieve that go­ing to col­lege can help people find high-pay­ing jobs. But they’re wor­ried that stu­dent debt can make it harder for gradu­ates to achieve fin­an­cial sta­bil­ity.

Today the ma­jor­ity of all col­lege stu­dents—at two-year and four-year, private and pub­lic in­sti­tu­tions—rely on grants and loans to pay tu­ition. Amer­ic­ans now hold about $1.2 tril­lion in stu­dent debt, and right now most bor­row­ers aren’t pay­ing off their debts at all.

Cum­mings and War­ren are par­tic­u­larly con­cerned about the ef­fect stu­dent debt has on Afric­an-Amer­ic­an bor­row­ers. “Afric­an-Amer­ic­an stu­dents are more likely to take on debt—and more debt—than white, Latino, and Asi­an-Amer­ic­an stu­dents,” Cum­mings said at the event. In 2013, 42 per­cent of Afric­an-Amer­ic­an fam­il­ies had stu­dent loans, com­pared to 28 per­cent of white fam­il­ies, ac­cord­ing to the Urb­an In­sti­tute, a Wash­ing­ton, D.C. think tank.

That ra­cial gap is driv­en by an enorm­ous wealth dis­par­ity, Cum­mings said. The av­er­age Afric­an-Amer­ic­an house­hold has a total net worth of $11,000, ac­cord­ing a Pew Re­search Cen­ter ana­lys­is. That’s not enough to pay for even a single semester at Howard, and it’s barely enough to cov­er a year of tu­ition at a pub­lic uni­versity like the Uni­versity of Mary­land-Bal­timore County. In con­trast, the av­er­age white fam­ily has a net worth of $141,900.

The start­ling dis­crep­ancy in house­hold wealth means that a white fam­ily and a black fam­ily can have the same in­come but a rad­ic­ally dif­fer­ent fin­an­cial situ­ation. It’s a dis­par­ity rooted in his­tory, as The At­lantic‘s Ta-Ne­hisi Coates has ex­plained, and it means that the av­er­age black fam­ily today es­sen­tially lives without a fin­an­cial safety net.

Stu­dent loans can be a life­line, help­ing stu­dents fin­ance col­lege de­grees even as tu­ition prices rise. Tyr­one Hanker­son, a cur­rent Howard seni­or, told for­um at­tendees that he’s fin­an­cing his edu­ca­tion through a com­bin­a­tion of schol­ar­ships, work-study aid, and a loan his par­ents took out on his be­half. After he gradu­ates, he plans on go­ing to law school.

But loan pay­ments can be­come a heavy bur­den. One Howard gradu­ate, Lat­e­ch­ia Mitchell, said that her un­der­gradu­ate de­gree was largely fin­anced by schol­ar­ships, but she took out $60,000 for gradu­ate school and to get a teach­er cer­ti­fic­a­tion. Al­though she and her hus­band both have col­lege de­grees and pro­fes­sion­al jobs, they can af­ford to pay only the in­terest on their cu­mu­lat­ive stu­dent debt.

“These de­grees have come at a steep cost,” Mitchell said. She works a second job dur­ing the sum­mer, her fam­ily for­goes va­ca­tions, and they are post­pon­ing buy­ing a home. Now she and her hus­band are wor­ried they won’t be able to set aside money to help their chil­dren pay for col­lege.

Pre­vi­ous re­search has shown that Afric­an-Amer­ic­ans may ex­per­i­ence a lower re­turn on their in­vest­ment in edu­ca­tion for a num­ber of com­plic­ated reas­ons, in­clud­ing lack of ac­cess to wealthy so­cial net­works and dis­crim­in­a­tion in hir­ing. Add dis­pro­por­tion­ate levels of stu­dent-loan debt, and young Afric­an-Amer­ic­ans face a dis­cour­agingly steep path to fin­an­cial se­cur­ity, even with the be­ne­fit of a col­lege de­gree.

Of course, every­one who takes out a stu­dent loan takes a risk. “One of the real chal­lenges with stu­dent debt is people don’t have an eco­nom­ic crys­tal ball,” said Ro­hit Chop­ra, as­sist­ant dir­ect­or and stu­dent-loan om­buds­man at the Con­sumer Fin­an­cial Pro­tec­tion Bur­eau. 

Nobody can pre­dict how the eco­nomy will shift, or what per­son­al fin­an­cial shocks—like a par­ent’s ill­ness or a sud­den lay­off—the fu­ture has in store. Stu­dent loans are also a re­l­at­ively new phe­nomen­on, at least at this volume. As the eco­nomy im­proves and wages rise, people like Mitchell may find their loan pay­ments more man­age­able.

There are also steps that in­sti­tu­tions, poli­cy­makers, and in­di­vidu­als can take to de­crease debt loads. Howard Uni­versity, for ex­ample, gives gradu­at­ing seni­ors a re­bate on part of their fi­nal semester’s tu­ition. Fin­an­cial edu­ca­tion can help stu­dents make bet­ter de­cisions be­fore they take out loans, and fed­er­al in­come-based re­pay­ment pro­grams can keep pay­ments man­age­able after gradu­ation.

War­ren also noted that Wash­ing­ton law­makers have two op­tions: They can give ex­ist­ing bor­row­ers some debt re­lief, and they can use fed­er­al dol­lars as a lever to bring down the cost of col­lege. She’s pro­posed al­low­ing stu­dents to re­fin­ance their loans at a low in­terest rate (and to pay for the change by rais­ing taxes on mil­lion­aires).

Grass­roots ad­vocacy will pres­sure law­makers to fo­cus on this is­sue, War­ren said. And she en­cour­aged event at­tendees to get in touch with their rep­res­ent­at­ives, sign pe­ti­tions, and get friends, fam­ily, and loc­al or­gan­iz­a­tions in­volved. “This is demo­cracy,” she said. “It may be slow, but ul­ti­mately, demo­cracy works.”

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