Today, we celebrate Juneteenth, America’s “second Independence Day,” commemorating the emancipation of the last slaves in the Confederacy. 155 years later, we continue to struggle as a country, as a people, and as a community with the deep scars of racial inequity. In basically any interaction with an institution in the US, the lived experience of African-Americans and Black people is different from their White counterparts. Differences in the debt load associated with seeking higher education is another example of these lived differences. Yes, crippling student debt that compounds (literally) and the resulting wealth gap is a social injustice, too.
Several recent studies document how Black students are disproportionately burdened by student debt. The literature points to three chief factors:
- Black students borrow more for their undergraduate degrees
- They are more likely to pursue (and borrow for) graduate degrees
- Their labor market outcomes are worse on average compared to their White counterparts
Surprisingly, the literature finds that the Black-White debt gap is larger than gaps by parental income or parental education, and the only one that grows substantially after graduation. A 2016 Brookings Institute analysis is careful to note that these differences “cannot be explained away by racial differences in parental education or income.” The Black-White total debt gap is five times bigger than the debt gap by parental education.
At their college graduations, Black graduates hold 46% more student debt than White graduates. In the four years after graduation, this disparity grows: Black graduates hold 88% more student debt than White graduates ($52,726 vs. $28,006). While the default rate for Black graduates has fallen in recent decades, it is still 3 times higher than White graduates’ default rate.
The Brookings analysis details the outsized role of graduate school enrollment in contributing to the racial student debt gap. Black college graduates are 23% more likely to go to graduate school, and are twice as likely to accumulate graduate school debt contingent on enrolling. 45% of the Black-White gap comes from differences in borrowing for graduate school. While borrowing for graduate education still yields a positive return on investment, it is clear that the risk of doing so for Black people is higher than it is for White people, on average.
Finally, the wage gap across borrowers of different races that possess the same education level contributes to the growing student debt gap between Black and White borrowers. Clearly, a relative reduction in earnings hampers borrowers’ ability to repay. This is reflected in the student debt repayment data: student debt payments eat up a higher percentage of total earnings for Black versus White borrowers. And, Black borrowers are more likely to pay more than 15% of their income towards their student debt. Many of these borrowers are likely to benefit from switching repayment plans.
High student debt balances also impede personal savings and the creation of wealth. As of 2016, the net worth of a typical white family ($171,000) is nearly ten times greater than that of a Black family ($17,100). Clearly, the increasing costs of higher education and corresponding rise in student loan debt are creating a new form of stratification for young adults, and student loan debt may be a new mechanism by which racial economic disparities are inherited across generations.
Fortunately, new income-driven repayment options can reduce the negative effects of racial earnings disparities on the accumulation of student debt. These repayment plans adjust borrowers’ monthly payments according to their income. Brookings notes that “the paperwork burden currently associated with such plans can be daunting, and too often students do not learn about income-contingent options until after they are already in trouble—having missed payments, accumulated fees, and damaged their credit.”
FutureFuel.io has created Reassess to help guide borrowers on this journey. Our tool serves up all of the repayment plans borrowers are eligible for and even allows borrowers to sign and submit the application, all online. On average, borrowers save $250-$325 per month (!), by simply getting on a payment program that is commensurate with income. The experience is free, safe, and secure.
Given the strong evidence suggesting that racial disparities in labor market outcomes worsen in recessions and macroeconomic climates similar to what we are in currently, Reassess is part of our efforts to move towards a more equitable and just world for everyone. This is our way of contributing what we can as a purpose and mission-driven organization, during COVID and beyond.
Authored by Laurel Taylor and Ben Levine