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Student debt crisis creates a 'vicious cycle' of inequality in Black, Latino neighborhoods, report finds

"America's student debt crisis is a civil rights crisis," according to a new analysis of student borrower data from New York, Washington, D.C., Philadelphia and San Francisco.
Image: Harlem
People gather during a Juneteenth celebration on June 19, 2020, in Harlem, N.Y.Frank Franklin II / AP file

Students of color are more likely to take on student debt and disproportionately struggle to pay it back at higher rates than their white counterparts, perpetuating a "vicious cycle" of economic inequality along racial lines, research released Monday suggests.

The report by the Student Borrower Protection Center, a consumer advocacy group, analyzed previous borrower data prepared by regional Federal Reserve banks and the city governments of New York City, Washington, D.C., Philadelphia and San Francisco and found a commonality that students in majority Black and Latino neighborhoods are more reliant on student loans and shoulder a greater debt burden.

For instance, in Washington, 6 of the 8 neighborhoods in which student debt is growing the fastest are majority nonwhite, including Anacostia, Deanwood and Congress Heights. Average student debt balances increased by as much as 217 percent in several majority-Black neighborhoods, compared to a 30 percent decrease in some of the whitest neighborhoods.

A similar trend played out in New York, San Francisco and Philadelphia, according to the analysis. In New York, six neighborhoods in the highest tier of student loan delinquency are majority nonwhite and mostly concentrated in the Bronx, which also has the highest 90-day delinquency rate of any area in the city despite the fact that borrowers have smaller median loan balances.

A student loan is considered delinquent when a payment is not made by the due date, and the borrower can be considered in default if a payment isnt made for an extended period, typically 120 days for a private loan and 270 days for a federal loan.

In Philadelphia, the rate of student loan default is more than twice as high in majority nonwhite neighborhoods as it is in majority-white neighborhoods. And in San Francisco, the rate of student loan delinquency is more than 7 1/2 times higher in neighborhoods with the biggest nonwhite populations.

"America's student debt crisis is a civil rights crisis," the report argues.

The struggle for many Black and Latino borrowers to pay down their debts can be traced back generations.

"Racial disparities throughout the student loan lifecycle begin long before a promissory note is signed or even before the financial award letter arrives," according to the analysis. "From the start of borrowers' lives, these disparities are spurred by the racial wealth gap."

Economic scholars over the years have examined such a gap, concluding that discriminatory and racist policies from slavery through the Jim Crow era and more recent decades have prevented Black families from building generational wealth and is exacerbated by wage disparities in employment and the lack of educational opportunities, including in higher education, which has historically been a path to lifting up a household's income.

The redlining of neighborhoods — in which federal agencies in the 1930s allowed for unjust lending practices that disenfranchised Black home buyers — gave way to the segregation that exists today, which the analysis says only mirrors the worst effects of the student debt lending crisis.

"Borrowers in different areas of the same city may live only blocks apart, but they may face wholly inequitable outcomes of their loans," the report says.

The typical white family's net worth is $171,000, nearly 10 times greater than that of a typical Black family and eight times a typical Latino family, according to a 2017 Federal Reserve study.

In turn, it's unsurprising that a Black or Latino student would have higher student loans and not have the means to pay off their debt, said Calvin Schermerhorn, a history professor at Arizona State University and author of "Unrequited Toil: A History of United States Slavery."

Schermerhorn said the years of studies on racial debt disparities make it clear that the nation must "ease or erase Black and Latinx student debt" and invest in students so they can leave college debt free and have an easier path toward financial mobility.

"If you're looking to rectify historical racial injustices, you have to think in those terms," he added. "There should be a way to forgive the debt of those people who have been subject to structural racism and marginalized and disadvantaged."

Ninety percent of Black students and 72 percent of Latino students take out loans compared to 66 percent of white students, according to the report. But on average, 20 years after starting college, the median Black borrower still owes 95 percent of the initial student loan balance, while the median white borrower has paid down almost 95 percent of the balance.

The median Latino borrower, meanwhile, still owes more than 80 percent of the student loan balance 12 years after graduating, compared to the median white borrower who owes 65 percent at that same time, according to the report.

America's shared student debt burden, which affects some 45 million borrowers owing an estimated $1.7 trillion, is just one piece of the "severe economic hardship" that has "unevenly" hit communities of color, Seth Frotman, executive director of the Student Borrower Protection Center, said.

"This cost is uniquely borne by borrowers of color, particularly Black and Latinx borrowers — all incurred simply because they chose to pursue the American dream," according to the study.