By Ben Kaufman | July 8, 2021
There is over $1.7 trillion of outstanding student loan debt in the U.S. This massive balance grows larger every day, negatively affecting every aspect of borrowers’ lives and generating consequences that ripple across entire communities. This situation is made even worse by the widespread failure of the student loan industry and the Department of Education to deliver borrowers their rights and ensure safe, reliable access to high-quality financial products and loan servicing.
Of all the ways in which the student debt crisis harms borrowers, communities, and the country as a whole, one of the most concerning is the role that student debt plays as a “cause and a consequence” of racial inequality.
Yet of all the ways in which the student debt crisis harms borrowers, communities, and the country as a whole, one of the most concerning is the role that student debt plays as a “cause and a consequence” of racial inequality. In particular, because Black and Latino families have less generational wealth to rely on to cover the massive cost of higher education, they are more likely to need to take on loans to pay for all varieties of postsecondary schooling and to take on larger debt balances when borrowing. Predatory targeting by for-profit colleges and companies pushing risky forms of credit add another layer of risk and debt. Racial disparities are compounded after graduation, with Black and Latino borrowers facing labor market discrimination, continued hounding by firms advertising risky credit options, and even lower quality student loan servicing. Black and Latino borrowers are consequently more likely to struggle in repayment, including being more likely to become delinquent or default, and to face ballooning debt balances over time.
These patterns make the promise of social mobility through higher education more tenuous for Black and Latino students, exacerbating existing gaps in opportunity and wealth. Moreover, previous research from the SBPC has highlighted severe racial disparities for student loan borrowers across cities. In particular, the SBPC has found that borrowers in the most racially segregated neighborhoods in American cities are up to five times more likely to fall behind on their student loans than borrowers in the whitest areas, and that variation in student debt distress bares eerie similarity to redlining maps in mortgage markets.
Credit panel data recently released by the Urban Institute offers a clearer glimpse at the extent of racial disparities in student debt distress in counties across the country. The Urban Institute’s dataset includes information on several variables related to student debt at the county level for all counties in the U.S. This includes data on the share of student loan borrowers that have defaulted on a student loan and face debt collection, a situation that can lead to massive additional fees, wage garnishment, and the seizure of government benefits for already vulnerable borrowers.
Importantly, the dataset includes detail on both the proportion of student loan borrowers with debt in collections in majority-white communities in each county and the proportion of student loan borrowers with debt in collections in communities of color within the same county. Note that the Urban Institute defines communities of color as zip codes where “at least 60 percent of the population is African American, Hispanic, Asian or Pacific Islander, American Indian or Alaska Native, another race other than white, or multiracial.”[1] Previous research from the SBPC has highlighted that majority-Black and majority-Latino areas in American cities currently see much faster growth in student debt balances and much higher delinquency and default rates. The Urban Institute’s data offers the opportunity to take an even broader view, looking beyond cities to examine how differences in student debt distress play out nationwide.
Our analysis of the Urban Institute’s dataset indicates that across all U.S. counties for which data is available, the share of student loan borrowers in collections in communities of color is, on average, 7 percentage-points higher than the share of borrowers in collections in majority-white communities in the same counties. In particular, across counties for which data is available, the share of borrowers in collections in communities of color within each county averages 16 percent, while the share of borrowers in collections in majority-white communities within the same counties averages 9 percent.
This finding is especially notable given that our analysis also indicated that communities of color in a given county tend to have roughly similar rates of student loan utilization as majority-white communities in the same county, and that communities of color in each county tend to have lower median student loan balances among borrowers than majority-white communities in the same counties. In particular, we found that the proportion of adults with student loan debt in minority communities in a given county is, on average, only 1.32 percentage-points higher than the proportion of adults with student loan debt in majority-white areas of the same county. Similarly, we found that the median student loan balance among borrowers in minority communities in a given county is, on average, $2,403 lower than the median student loan balance among borrowers in majority white communities in the same county. This starting point makes the unique distress faced by communities of color across the country all the more striking.
Moreover, the disparities that exist within each county related to the share of borrowers in collections are often far greater than 7 percentage-points. For example, our research indicates that there are 109 counties where this spread is 10 percentage-points or more and that there are 18 counties where this spread is 20 percentage-points or more.
The following five counties have the largest percentage-point disparities between the share of student loan borrowers in collections in majority-white communities in each county and the share of student loan borrowers in collections in communities of color within the same county:
Note: Excludes counties likely to face data limitations due to small sample size. Figures are rounded.
These counties span from the Great Lakes region to the South and from the East to the Midwest. But they all have one thing in common: within them, the nationwide trend of the burden of student loan debt falling heaviest on communities of color is especially apparent.
Differences in student debt distress are even more visible when presented not as absolute percentage-point spreads, but as multiples. This presentation allows for relative comparison of rates of student loan distress in majority-white communities and communities of color. In particular, our analysis indicates that there are 143 counties where the share of student loan holders with debt in collections is at least twice as high in communities of color as it is in majority-white communities in the same county.
A smaller snapshot offers a glimpse at the wide variety of counties where these disparities are most acute. Our research indicates that there are 20 counties where the share of student loan borrowers in collections in communities of color is at least 3.5 times greater than the share of student loan borrowers in collections in majority-white communities in the same counties, and that there are eight counties where the share of student loan borrowers in collections in communities of color is at least four times greater than the share of student loan borrowers in collections in majority-white communities in the same counties.
These disparities are largest in the following five counties:
Note: Excludes counties likely to face data limitations due to small sample size. Figures are rounded.
As above, these five counties represent a wide range of regions. Yet they follow a common thread: within these counties, borrowers of color and the communities they live in are forced to reckon with the burden of student debt to an extent that is simply not present for white borrowers living just down the road.
The student debt crisis is a civil rights crisis. The Urban Institute’s data and our analysis of it underscore that even when they live in neighboring communities, borrowers of color and white borrowers are likely to have vastly different experiences taking on and repaying loans for higher education. When we last considered the geographic distribution of student debt distress, we concluded that “borrowers residing in different areas of the same city may live only blocks apart but face drastically different outcomes on their loans.” As our new research shows, the link between racial segregation and student loan borrower distress is not limited to America’s largest cities— it is a nationwide phenomenon spanning urban, suburban, and rural communities.
Read more on the Student Borrower Protection Center’s Civil Rights Project here, including first-of-its-kind research investigating how student debt drives racial disparities in America’s cities, how Black and Latino borrowers uniquely struggle under the weight of private student debt, and how Black and Latino borrowers are blocked from accessing key protections meant to be available to all federal student loan borrowers.
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Ben Kaufman is the Head of Investigations and a Senior Policy Advisor at the Student Borrower Protection Center. He joined SBPC from the Consumer Financial Protection Bureau where he worked as a Director’s Financial Analyst on issues related to student lending.
[1] Regarding the delineation between majority-white communities and communities of color within each county, the Urban Institute explains: “Specifically, the majority-white communities are based on credit records for people who live in zip codes where most residents are white (at least 60 percent of the population is white), and communities of color values are based on credit records for people who live in zip codes where most residents are people of color (at least 60 percent of the population is African American, Hispanic, Asian or Pacific Islander, American Indian or Alaska Native, another race other than white, or multiracial).”