Personal Finance

Racial wealth inequality is worsened by student debt, study finds

Key Points
  • White borrowers pay down their education debt at a rate of 10 percent a year, compared with 4 percent for black borrowers, a study finds.
  • As a result,  the researchers say, 15 years after blacks leave college, they hold 185 percent more in student loans than whites.
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Student debt is worsening wealth inequality between white and black Americans.

That's the takeaway from a new study titled, "Racial Disparities in Student Debt and the Reproduction of the Fragile Black Middle Class," published this year in the journal Sociology of Race and Ethnicity.

The researchers found that black young adults take on 85 percent more education debt than their white counterparts — and that disparity compounds by 7 percent each year after the borrowers leave school, because African-Americans face unique repayment challenges.

To be sure, student loan repayment is an issue across the board. Fewer than half of all borrowers have paid even $1 toward the principal of their balance five years into repayment, according to the Education Department.

But for black borrowers, the situation is even grimmer. White borrowers pay down their education debt at a rate of 10 percent a year, compared with 4 percent for black borrowers. As a result, 15 years after they leave college, black adults hold 185 percent more in student loans than white adults.

"The racial wealth gap is both the biggest and has grown the fastest among those with a college education," said Jason Houle, assistant professor of sociology at Dartmouth College and co-author of the study. "We point to student loan debt as potentially one thing that explains why that's happened."

The study data were drawn from the National Longitudinal Study of Youth 1997 Cohort, a nationally representative sample of over 8,900 respondents who were interviewed nearly every year since.

The researchers calculated that student debt contributed to nearly a quarter of the black-white wealth gap, shown below.

Why are black student loan borrowers deeper in the red? The researchers cite a barrage of challenges.

Black families and students often have less wealth to draw on than their white counterparts, making them more likely to turn to student loans to cover rising college costs. In addition, more black students attend for-profit colleges, many of which have come under scrutiny for being expensive and failing to adequately prepare their students for employment.

Black youth are also more likely to have private loans, which often come with fewer consumer protections and higher interest rates than federal loans.

So while black Americans have experienced greater access to college over the decades, "they have made these gains on exploitative terms," the researchers conclude. Houle pointed to previous research that calls this phenomenon "predatory inclusion." In that study, parallels are drawn between the student loan and housing market. "Black Americans now have more access to home ownership than they did, but it's largely on predatory terms," Houle said. "This similar thing goes on in the student loan market."

In light of those troubling dynamics, Houle said, the promise of college as an engine for upward mobility is at risk.

"In a world where we have rising college costs and rising student debt," he said, "it raises questions about whether or not that engine may be sputtering out."

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