Students Loan Debt by Race

Higher risks for students of color when it comes to education debt

While student loan debt has been an issue for many years, the idea of cancelling it has only recently gained mainstream support. It’s not hard to see why internet searches for “student loans forgiveness” or “student loans cancellation” have risen since 2021. Americans collectively owe $1. $1 trillion in student loan debt. This amount is more than nearly any country’s gross domestic product (GDP).

It is a significant financial burden that will only continue to increase. It puts a lot of pressure on already economically vulnerable people, especially young people who are just starting to build their careers and families. It is clear that although this issue affects everyone in America to some degree, certain groups have a more difficult time.

Understanding Student Loan Debt

Student loan debt is when you borrow money to pay for your education. This includes tuition costs, textbooks, living expenses, as well as any other expenses. It is becoming increasingly difficult to pay for higher education without financial aid.

If a student is unable to find a job that pays enough, they will have trouble paying back their 1000 dollar loan. If you miss a repayment due date even by one day, it is called delinquency. There is a possibility of default after a period of delinquency depending on which type of loan. These conditions can have a significant impact on your financial situation, especially when it comes credit scores and credit reports.

Student loan debt is estimated to affect more than 43 million Americans by 2021. High repayments can make saving money difficult for long-term goals. This burden is not the same for all Americans. Higher student loan balances are common for members of certain racial and ethnic groups.

These discrepancies may be caused by or at least influenced by racism. While student loan disparities can be a sign of greater socioeconomic inequality and a reinforcement thereof, there are other factors that can also influence the amount of debt a group will collectively owe.

US population total: Some statistics can be distorted by the size of a particular population group. If a study shows that one group has more student loans than the other, this could simply be due to greater numbers of people.

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Income differences: While it is obvious, it is worth noting that people with higher incomes will be able to pay down their debts more easily. A quarterly report by the Bureau of Labor Statistics (BLS), shows that there is indeed a wage gap based on race.

Distribution of careers: If more members of a group work in high-paying fields, such as engineering, science, and mathematics (STEM), they will be able more easily to repay their student loans. It is also true that groups with a high proportion of members working in low-wage jobs, such as food service or engineering, will take longer to repay their student loans.

Credit and lending issues: You need to have good credit in order to get a private student loan at a favorable rate. Student loans that are repaid by predatory lenders can be more difficult to repay if there are more students from a particular group.

Familial wealth: Wealthy families might choose to pay for the entire education of their children, which will leave them free from debt after graduation. However, students in financial trouble may need to rely on their children to provide financial support. This puts an additional strain on those already struggling to pay student loans.

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Parents have responsibilities: Young parents, especially single parents, need to consider childcare when planning their budget. They may not be able to pay for basic necessities and their debts, depending on their income.

Cost of living in your local area: Housing costs can be very expensive. Higher cost areas will require students to borrow more money in order to pay for their living expenses.

Type of institution: Costs of attending an institution will vary depending on whether they are public, private, for-profit, or nonprofit and whether they are two-year-old or four-year. These differences can be seen in tuition, fees and room and board as well as books and other academic supplies.

Type of loan: There are two types of student loans. Federal national small loan that are funded by the U.S. Government and private loans that are provided by banks or other non-federal lenders. There are many factors that can affect the difficulty of each loan’s repayment. Private loans, on the other hand, are more costly than federal loans and can have higher interest rates.

Graduation status: A student who takes out a loan to pay for college doesn’t graduate will be left with significant debt and no economic benefits. Students who want to pursue postgraduate studies may have to borrow additional money in addition to the undergraduate debt.

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Before we discuss our findings about student loan debt differences by race, let’s talk about another issue: Most of the research on student loan debt differences by race focuses on Black and White borrowers. The United States has a limited amount of information on the diversity of racial groups. Some data sets that only cover one group or two don’t include other groups. Sometimes, information about a wider range of groups might come from a different source (and sometimes more recent).

Please note that some names used in this article may not be consistent with the terminology used by our source. Investopedia uses the identifier “Latinx”, but this article uses “Hispanic” categories to accurately reflect the way the study we cite reported the information.

The size of student loan debt varies by race

Average student loan debt by race or ethnicity (2019).

According to the Federal Reserve System Board of Governors, Black borrowers borrowed the most federal student loan money in 2019, at $44,880. While “Other”, at $40,400 was technically the second-highest, it is not clear from the Fed’s website what groups make up this category. This limits its effectiveness when comparing. The second-largest amount was taken out by white borrowers. Hispanic borrowers borrowed the lowest amount, $30,890.

Notable: Black borrowers received the lowest amount of student loans money in 1989 when the Fed started recording the data. They outperformed all other categories (except “Other”) in 2010, with only one dip in 2013.

One sobering statistic is the U.S. Department of Education’s finding that 48% of Black graduates have seen their debts rise in four years after graduation, compared with just 17% of White graduates.

Average student loan debt by gender and race

The Fed’s report on the intersection of gender and race shows that the trends are very similar. Here are the findings of the American Association of University Women.

Black women had the highest average student loan debt of 2021. Black women had $41,466 overall.

Next was the Pacific Islanders/Hawaiian Women at $38,747. Then came American Indian/Alaska Native women, at $36,184. White women were at $33,852.

Hispanic/Latinx borrowers ranked second at $29,302.

Asian borrowers owed less than the rest, while men owing slightly more than women.

The percentage of graduates with debt by race

Further discrepancies can also be observed in the distribution of loans, which is affected by race and where the student has studied. This is what the Student Borrower Protection Center (also shown in the chart above) reported.

In 2020, the highest proportion of borrowers for higher education was made up of Black/African American graduates from all institutions.

Asian borrowers had the lowest percentages of all types, which means they were more likely to graduate with no student loan debt.

The second-highest percentage of white borrowers was in public universities. It was also the third-highest in both private and public nonprofit universities. Private nonprofit universities had the fourth-highest.

The percentages of Hispanic/Latinx graduates and American Indian/Alaska Native graduate were generally higher than those from public two-year colleges.

Notable is also the fact that the percentages of borrowers at private nonprofit universities was the highest across all five groups. There was little to no difference between the groups. This could be due to the higher tuition costs at private non-profit universities, according to Urban Institute’s 2017-2018 findings.

Student loan debt and the impact of race

No matter what background, student loan debt is a significant problem for many borrowers. Brookings Institution examined the median income and student debt over the past nine years and found a widening gap between what people make and what they owe to their education. The gap between what a borrower earns and what they owe for their education has widened for Black borrowers.

Black borrowers. Black borrowers are more likely to have a problem with debt than other students. The Student Borrower Protection Center found that Black students took on more loans in 2020 to pay for their education than other groups, and had less household wealth.

A 2017 Federal Reserve Bank of St. Louis report also found that postgraduate White families receive financial support from their families, while their Black counterparts contribute a portion of their income to their families. This limits the ability to build wealth. This means that if borrowers have children, it is common for the cycle to start over again. Black households can have a lower credit score if they have student loan debt that is larger.