Borrowing while Black: Understanding What Makes Student Debt a Crisis for Black Students

With the total student debt in the United States at nearly $1.5 trillion,1 loans are affecting the lives of many students. Research suggests that despite the challenges of student debt, on average, going to college pays off because students have better social and economic outcomes than their peers.2 But while higher education pays off for the average graduate, the student loan data illustrates a unique and severe situation for Black students that has reached crisis level, even if the same isn’t true for other racial and ethnic groups.

Borrowing while Black is a different experience. Black students are more likely to borrow—and borrow more—than their peers and are also more likely to struggle with repayment.3 For example, while other student groups who entered college in 2003–4 were able to pay off some portion of their loans after twelve years, Black students actually owed more than what they originally borrowed.4 Those who cannot make the payments eventually go into default, which can lead to severe consequences such as having wages garnished, tax refunds withheld, and credit ruined, which affects the ability to buy a house or car. Unfortunately, about half of Black student borrowers in the 2003–4 cohort defaulted on their loans by 2016,5 and up to 70 percent are projected to default by 2024.6 Even the earnings boost from graduating from college or having a high family income does not completely shield Black students from defaulting. A Black bachelor’s degree graduate is more likely to default than a White college dropout,7 and Black borrowers from high-income families are seven times more likely to default than their White peers from high-income families.8

We have a crisis in which Black students are more likely to borrow, borrow more, owe more than their original loan amount, struggle with repayment, and have higher default rates even among those who earn a college degree and come from high-income families. Existing student debt policies that adjust payments based on income (income-driven repayment plans, for instance) have not made a difference for Black borrowers.9 But to understand what can make a difference, we first have to explore exactly what is fueling this student debt crisis for Black students.

Racial income and wealth gap

Thanks to rampant employment discrimination, Black people tend to be concentrated in low-paying jobs.10 Part of the problem is that Black applicants don’t get an equitable chance at job opportunities, as résumés with White-sounding names receive 50 percent more callbacks than those with Black names.11 This leads to a racial income gap, where the typical White household has $61,200 in income, while the typical Black household has $35,400.12 Unfortunately, the cumulative effects of racist policies over time do not end there. The long legacy of slavery, Jim Crow, and racist federal housing policies,13 combined with ongoing employment and lending discrimination, have impeded Black families from building wealth through homeownership—a leading reason the typical White household has nearly ten times more wealth than the typical Black household.14 Unfortunately, even higher education cannot close this racial wealth gap, as the typical Black household with a bachelor’s degree or higher has a lower net worth than a typical White household with a high school education or less.15 Due to these disparities, Black families tend to rely more heavily on student debt to finance higher education.

Housing segregation and an inequitable K–12 system

Factors and policies outside of higher education have negatively affected Black students’ ability to access college. Racist housing segregation and its economic impacts are still happening today, as three out of four neighborhoods that were “redlined”—an institutionalized system of discriminatory mortgage lending toward Black people—on government maps continue to struggle economically.16 This impacts not just Black borrowers but also Black communities. For example, majority-Black neighborhoods (determined by zip code) have higher student loan balances and default rates than majority-White neighborhoods.17 This translates into Black communities having fewer resources to invest in local businesses and schools.

Then there is the rampant inequitable funding of public K–12 schools, in which non-White school districts received $23 billion less than White school districts even though they served the same number of students.18 Unfortunately, Black students are concentrated at under-resourced K–12 schools that are less likely to have college-prep courses and that are more likely to have less qualified teachers who have lower expectations of students.19 The combination of de jure and de facto housing segregation with inequitable funding of K–12 systems ultimately results in Black students being further segregated into less selective colleges with lower graduation rates.

Inequitable state higher education policy and spending

In the wake of the Great Recession, which began in December 2007, states slashed funding for public two- and four-year institutions, resulting in colleges increasing their tuition to make up the difference. States have still not returned to pre-recession funding levels. In 2018, overall state funding for public institutions was more than $6.6 billion below what it was in 2008, and states on average spent 13 percent less on students after adjusting for inflation.20

Rising costs and state budget cuts affect all students and disproportionately threaten affordability and access for Black students. In 2017, the average net price for a public four-year college was 23 percent of the typical household income but was 40 percent or more of the typical Black household income in seventeen states. And in forty-seven states, low-income students need to work more than fifteen hours per week to pay the net price at a public four-year college.21 In addition to not having enough income, Black families do not have the wealth to shoulder the increasing cost of college.

With cuts in funding aside, states have long operated in a racially segregated and unequal system of higher education. Due to policy choices, states have funded less selective community colleges and public four-year institutions at much lower rates than selective public colleges. Since a disproportionate share of Black students attend less selective colleges, this means states are spending $1,000 less per student on Black students than on their White peers, amounting to approximately $5 billion less annually.22

From 1970 to 1997, many court cases found that states systematically spent less on historically Black colleges and universities (HBCUs) than on predominantly white institutions.23 Yet despite HBCUs winning their cases in court, not all outcomes have led to equitable compensation for years of inequitable funding practices. For example, in 2013, Maryland was found guilty of allowing traditionally white universities to duplicate academic programs that were already established at four HBCUs in the state, effectively steering away students and funding.24 Fortunately, the Maryland Senate recently passed a bill to provide more than $500 million to the state’s HBCUs. Black students are underrepresented even at public two- and four-year colleges and universities. Underfunding the institutions (such as HBCUs and community colleges) that provide Black students with access to college means Black students have less access to the financial resources necessary to complete their degree.

Twelve-Year Default Rates and Average Adjusted Gross Income (AGI) by Race/Ethnicity for Dependent Full-Time, First-Time Students at Four-Year Institutions

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Federal higher education policy exacerbates the crisis

The Pell Grant Program is the largest federal need-based aid program, and 58 percent of Black students are recipients.25 Unfortunately, as Black enrollment has progressed over the decades, the purchasing power of the Pell Grant has sharply declined. In 1975, the grant covered 79 percent of the cost of college at a public university,26 but by 2019–20 it covered only 28 percent.27 This decline has severe consequences for all Black students—who disproportionately rely on the Pell Grant to make higher education more affordable28—and many have turned to student loans to make up the difference.29

Meanwhile, the federal government has failed to protect students from predatory for-profit institutions that disproportionately target and enroll Black students. Studies have found that three in four Black borrowers who attended a for-profit college and did not complete their degree defaulted on their loans,30 and rules that would force for-profit schools to disclose information about graduate salaries were struck down this year.31

Lastly, default rates have remained high despite income-driven repayment (IDR) plans, which adjust monthly payments based on the borrower’s income. While some IDR plans cover a portion of accumulating interest rates, they can be dangerous for borrowers who are on the plan for long periods of time and make few or no payments, as they will likely see their balances increase. Unfortunately, a third of Black bachelor’s degree recipients are enrolled in such a plan, and of those, nearly 60 percent have a monthly payment of $0.32

Racial justice problems require racial justice solutions

Racial equity for Black borrowers will not be achieved by relying on proxies for race, ignoring racial discrimination, or avoiding race-conscious policies. So, how can we turn the tide? Here are a few steps:

• States should oppose using race-neutral higher education funding formulas and invest more in need-based aid and in colleges that provide high-quality opportunities for students of color. They should also remove bans on affirmative action.

• The federal government should make states work toward closing gaps in spending by race in K–12 schools and in public higher education as a requirement for any state-federal partnerships.

• The federal and state governments should invest more in HBCUs, tribal colleges, and other minority-serving institutions (MSIs) and ensure enrollment-driven MSIs are truly serving students of color.

• The federal government should restore the purchasing power of Pell by at least doubling the maximum amount, index it to inflation, and make 100 percent of funding for the grant mandatory, all while making it available to currently and previously incarcerated individuals.

• In order to close the racial wealth gap, policymakers should commit to large-scale, equitable student debt forgiveness that is based on both income and wealth. For example, a recent Education Trust report suggests that debt forgiveness policy should identify eligible students under a particular income threshold but allow a higher income threshold for Black students who can demonstrate limited wealth.33 Additionally, other factors should be included to further target forgiveness to Black, Latino, and Native American borrowers, who, because of the effects of structural and institutional racism, struggle more to repay their loans.

Despite the crisis they have created, student loans have been important in giving opportunity to Black students who may not have had other means to finance their education. Some would argue that in today’s knowledge economy, the most expensive education is the one not earned. Unfortunately, with racism and inequity manifesting itself in the forms of income and wealth gaps, separate and unequal segregation, inequitable funding, and ineffective policy, Black borrowers are paying that unjust price. Therefore, it’s critical to fix the Black student debt crisis, and this requires recognition that there is a crisis and an understanding of how it uniquely affects Black students.34 While there is no single quick fix to the complicated crisis of borrowing while Black, these race-conscious recommendations are important first steps in ensuring we recognize the plight of Black borrowers, not only in how we diagnose the problem but also in how we craft the solutions.35 

Notes

1. Quarterly Report on Household Debt and Credit (Federal Reserve Bank of New York, August 2019), https://www.newyorkfed.org/medialibrary/interactives/householdcredit/dat....

2. Philip Trostel, “It’s Not Just The Money—The Benefits of College Education to Individuals and to Society,” Lumina Foundation, October 14, 2015, https://www.luminafoundation.org/resources/its-not-just-the-money.

3. “Quicksand: Borrowers of Color & the Student Debt Crisis,” UNIDOS US, National Association for the Advancement of Colored People, Center for Responsive Lending, National Urban League, & The Leadership Conference Education Fund, September 2019, https://www.responsiblelending.org/sites/default/files/nodes/files/resea....

4. Mark Huelsman, “Debt to Society: The Case for Bold, Equitable Student Loan Cancellation and Reform,” De–mos, June 6, 2019, https://www.demos.org/research/debt-to-society.

5. Ben Miller, “The Continued Student Loan Crisis for Black Borrowers,” Center for American Progress, December 2, 2019, https://www.americanprogress.org/issues/educationpostsecondary/reports/2....

6. Judith Scott-Clayton, “The Looming Student Loan Default Crisis Is Worse than We Thought,” Brookings Institute, May 15, 2018, https://www.brookings.edu/research/the-looming-student-loan-default-cris....

7. Judith Scott-Clayton, “The Looming Student Loan Default Crisis Is Worse than We Thought.”

8. Tiffany Jones and Andrew H. Nichols, “Hard Truths: Why Only Race-Conscious Policies Can Fix Racism in Higher Education,” Education Trust, January 2020.

9. Ben Miller, “The Continued Student Loan Crisis for Black Borrowers.”

10. Christian E. Weller, “African Americans Face Systematic Obstacles to Getting Good Jobs,” Center for American Progress, December 5, 2019, https://www.americanprogress.org/issues/economy/reports/2019/12/05/47815....

11. Marianne Bertrand and Sendhil Mullainathan, “Discrimination in the Job Market in the United States,” Abdul Latif Jameel Poverty Action Lab, accessed February 11, 2020, https://www.povertyactionlab.org/evaluation/discrimination-job-market-un....

12. Lisa J. Dettling, Joanne W. Hsu, Lindsay Jacobs, Kevin B. Moore, and Jeffrey P. Thompson, “Recent Trends in Wealth-Holding by Race and Ethnicity: Evidence from the Survey of Consumer Finances,” Board of Governors of the Federal Reserve System, September 27, 2017, https://www.federalreserve.gov/econres/notes/feds-notes/recent-trends-in....

13. Tracy Jan, “Redlining Was Banned 50 Years Ago. It’s Still Hurting Minorities Today,” Washington Post, March 28, 2018, https://www.washingtonpost.com/news/wonk/wp/2018/03/28/redlining-was-ban....

14. Christian E. Weller, Connor Maxwell, and Danyelle Solomon, “Simulating How Progressive Proposals Affect the Racial Wealth Gap,” Center for American Progress, August 7, 2019, https://www.americanprogress.org/issues/race/reports/2019/08/07/473117/s....

15. Mark Huelsman, “Debt to Society.”

16. Tracy Jan, “Redlining Was Banned 50 Years Ago.”

17. Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw, “Just Released: Racial Disparities in Student Loan Outcomes,” Liberty Street Economics, Federal Reserve Bank of New York, November 12, 2019, https://libertystreeteconomics.newyorkfed.org/2019/11/just-released-raci....

18. “23 Billion,” EdBuild, February 2019, https://edbuild.org/content/23-billion.

19. “K-12 Disparity Facts and Statistics,” United Negro College Fund, accessed February 9, 2020, https://uncf.org/pages/k-12-disparity-facts-and-stats.

20. Michael Mitchell, Michael Leachman, and Matt Saenz, “State Higher Education Funding Cuts Have Pushed Costs to Students, Worsened Inequality,” Center on Budget and Policy Priorities, October 24, 2019, https://www.cbpp.org/research/state-budget-and-tax/state-higher-educatio....

21. Andrew Nichols, Marshall Anthony, and J. Oliver Schak, “How Affordable Are Public Colleges in Your State?” Education Trust, December 19, 2019, https://edtrust.org/resource/affordability-gap/.

22. Sara Garcia, “Gaps in College Spending Shortchange Students of Color,” Center for American Progress, April 5, 2018, https://www.americanprogress.org/issues/education-postsecondary/reports/....

23. Andre M. Perry, “HBCUs Are Leading Centers of Education. Why Are They Treated as Second-Class Institutions?” Brookings Institute, November 22, 2019, https://www.brookings.edu/blog/brown-center-chalkboard/2019/11/22/hbcus-....

24. Talia Richman, “Coalition of Maryland HBCUs Seeks $577 Million to Drop Lawsuit, Avoid ‘Litigating for the Next 10 Years’,” Baltimore Sun, September 11, 2019, https://www.baltimoresun.com/education/bs-md-hbcu-lawsuit-settlement-off....

25. “Trends in Pell Grant Receipt and the Characteristics of Pell Grant Recipients: Selected Years, 2003–4 to 2015–16,” US Department of Education, September 2019, https://nces.ed.gov/pubs2019/2019487.pdf.

26. Spiros Protopsaltis and Sharon Parrott, “Pell Grants—a Key Tool for Expanding College Access and Economic Opportunity—Need Strengthening, Not Cuts,” Center on Budget and Policy Priorities, July 27, 2017, https://www.cbpp.org/research/federal-budget/pell-grants-a-key-tool-for-....

27. “Pell Grants Help Keep College Affordable for Millions of Americans,” Institute for College Access and Success, September 18, 2019, https://ticas.org/wp-content/uploads/2018/07/Overall-Pell-one-pager.pdf.

28. “Trends in Pell Grant Receipt and the Characteristics of Pell Grant Recipients.”

29. “Quicksand: Borrowers of Color & the Student Debt Crisis.”

30. Mark Huelsman, “The Debt Divide: The Racial and Class Bias Behind the ‘New Normal’ of Student Borrowing,” De–mos, May 19, 2015, https://www.demos.org/research/debt-divide-racial-and-class-bias-behind-....

31. Erica L. Green, “DeVos Repeals Obama-Era Rule Cracking Down on For-Profit Colleges,” New York Times, June 28, 2019, https://www.nytimes.com/2019/06/28/us/politics/betsy-devos-for-profit-co....

32. Ben Miller, “The Continued Student Loan Crisis for Black Borrowers.”

33. Tiffany Jones and Andrew H. Nichols, “Hard Truths.”

34. “National Study on Black Student Loan Debt,” The Education Trust, accessed May 26, 2020, https://edtrust.org/black-student-debt-study/.

35. “Black Student Debt: Explaining the Crisis and Providing Solutions,” The Education Trust, accessed May 26, 2020, https://edtrust.org/black-student-debt/.


Tiffany Jones is senior director of higher education policy, Victoria Jackson is senior policy analyst, and Jaime Ramirez-Mendoza is a policy analyst, all at The Education Trust.

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