Analysis of student loan default rates shows racial disparities

New data from the Federal Reserve Bank of New York shows that student loan borrowers from predominantly Black neighborhoods are defaulting at nearly twice the rate of borrowers from mostly white neighborhoods, reports Reuters.

Federal student loans aim to make college more accessible, but “high delinquency rates suggest that the high borrowing rates may not be paying off immediately for all borrowers, particularly if their income remains insufficient to maintain current status on their debt service payments,” the researchers wrote in a blog post.

Disparities in borrowing rates and likelihood to default

For their analysis, the researchers explored borrowing rates in zip codes where one racial demographic was more prevalent. They found that 23 percent of residents in predominantly Black zip codes have student loans, compared to 14 percent in predominantly white neighborhoods and 17 percent in neighborhoods that are mostly Hispanic.

But those differences in borrowing rates don’t sufficiently explain the notably higher default rates and higher debt-to-income ratios in areas where the majority of residents are Black. The analysis shows that 17.7 percent of borrowers in predominantly Black neighborhoods defaulted on their student loans, compared with 9 percent of borrowers in predominantly white areas.

Persistent wealth gap

Commenting on the findings, experts pointed to racial disparities in wealth and income as drivers of high borrowing rates. With fewer family assets to draw from, lower wages, and higher debt burdens, students of color are likely to find it harder to accumulate the wealth needed to stop the cycle.

“In order to get more opportunities, you need to go to college, but you need more debt to make that happen. At the same time, incomes have not kept up,” Ashley Harrington, senior policy counsel for the Center for Responsible Lending, told Reuters. Meanwhile, students of color are being disproportionately targeted by for-profit schools, which are usually more expensive and have lower graduation rates, in turn leaving students with more debt, fewer degrees, and lower wages, she added.

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