Student Debt Significantly Impacts Communities of Color
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Student Debt Significantly Impacts Communities of Color

African-American and Latino communities were hit the hardest by the Great Recession

September 16, 2016

One of the worst consequences of the Great Recession has been the rising rate of student debt. Millions of Americans lost a great deal of household wealth, which strained their ability to pay for higher education and often shifted that burden from the family to the student. The communities hit the hardest by this were African Americans and Latinos.

Many families in these communities experienced a halving of their net worth. Together with rising tuition costs and fees at public schools and the many students of color attending for-profit schools, this significantly affected how much debt these students and their families have accrued for the sake of a higher education.

Data collected by the federal government indicates that more than 90 percent of African American students and 72 percent of Latino students are burdened with student loan debt upon leaving college in comparison with 66 percent of Caucasian students and 51 percent of Asian students. Although Asian-American students might not be as likely to take out a federal student loan, other research indicates that those who need more than $30,000 may be more likely to take out private student loans, which do not offer as many consumer protections for borrowers, to pay for their educations.

Here are some of the ways student debt impacts the lives of members of these communities:

  • It can trigger a financial domino effect preventing economic mobility.

Student loans and their consequences often spill over into the other areas of the borrower's life. In addition, this debt can also prevent economic mobility by holding back borrowers, particularly those of color, from making investments in their financial futures.

  • Members of these communities with student loan debt are more likely to go into delinquency or default.

Although there are now more repayment options available to those who take out federal student loans, one out of every four borrowers is either delinquent or in default on those loans, a phenomenon especially common among students who enroll in for-profit schools or who leave school before finishing their degree. This could mean that millions of people who borrowed student loans may not receive information about their repayment options or may have trouble enrolling in such repayment plans. Such difficulties may be even harder to overcome for students of color, who are more likely to enroll in for-profit colleges and who encounter unique obstacles as they work to finish their degree: there is research suggesting that there are greater rates of defaults and delinquencies on student loans in ZIP codes where the majority of people are members of minorities with higher income levels.

  • There are still economic barriers causing people of color to borrow at higher rates.

The Great Recession made a significant impact on households of color. Research indicates that, even as the economy recovers, the wealth gaps between these households and Caucasian ones have steadily increased since the end of the crisis. Such barriers continue making it difficult for families of color to save and pay for higher education without taking on great debt.

It is for these reasons that it is important to continue to try to make the student loan market work better for all borrowers.