New Report Finds Severe Racial Disparities for Student Loan Borrowers Across American Cities

Borrowers in the Most Racially Segregated Neighborhoods Are up to Five Times More Likely to Fall Behind on their Student Loans than Borrowers in Whitest Areas

June 29, 2020 | Washington, DC — Alarming racial disparities in student debt burden and borrower distress exist across American cities, according to a new report issued today by the Student Borrower Protection Center. The report, which builds on recent research by economists and city officials across four major U.S. cities, shows that borrowers in majority-Black and majority-Latinx neighborhoods shoulder greater debt burdens and struggle disproportionately when repaying their loans. The new analysis also shows that the more racially segregated a neighborhood grows, the larger the student loan disparities become, with borrowers in the most segregated areas being up to five times more likely to fall behind on their loans than those in the whitest areas. Together, these findings offer stark new evidence of the role of the student debt in exacerbating the nation’s vicious cycle of inequality and persistent racial wealth gap.

“The student debt crisis is hitting American neighborhoods unevenly, with communities of color paying the heaviest price,” said SBPC Executive Director Seth Frotman. “The racial disparities in the student loan market mirror the worst effects of discriminatory redlining, as Black and Latinx communities disproportionately shoulder the burden of student debt and distress.”

The new report, Disparate Debts: How Student Loans Drive Racial Inequality Across American Cities, can be found at: https://protectborrowers.org/disparate-debts

Racial Disparities Across American Cities

The SBPC examined data from four major U.S. cities— Washington, D.C., Philadelphia, San Francisco, and New York City—-that are cumulatively home to more than 11.5 million people and approximately 1.6 million student loan borrowers. These cities recently worked with regional Federal Reserve Banks to produce reports analyzing student debt trends within their municipalities. The SBPC analyzed the data produced through this effort to identify trends and insights across cities related to the impact of student debt on communities of color.

Key findings of the SBPC’s analysis across these major cities include:

  • Black and Latinx-Majority Areas See Fastest Growing Student Debt: Across these cities, Black and Latinx borrowers take on a greater debt burden to finance higher education, with many of the largest and fastest-growing student loan balances found in majority-Black communities. In Washington, D.C., for example, six of the eight neighborhoods where student debt is growing the fastest are majority-minority. Over the last decade, average student debt balances in Washington, D.C. increased in several majority-Black neighborhoods by as much as 217 percent, while median debt balances decreased by 30 percent in some of the whitest neighborhoods. Similarly, in San Francisco, the ratio of student loan debt to income is almost twice as high in majority-minority neighborhoods as in majority-white ones.
  • Delinquency Rates Disproportionately Spike in Neighborhoods with High Black and Latinx Populations: Borrowers in different areas of the same city face hugely disparate levels of distress on their loans. These disparities closely track the racial makeup of the neighborhoods where borrowers live. In San Francisco, for example, the rate of student loan delinquency is over 7.5 times higher in areas with the largest minority populations than the whitest areas. More generally, the SBPC’s analysis of data across these cities found that a borrower in a majority-minority neighborhood is 2.6 times more likely to fall behind on their student loans than a borrower in a majority-white neighborhood. Further, a borrower in a 90 percent-minority neighborhood is 5 times more likely to fall behind on their student loans than a borrower in the whitest areas.
  • Student Loan Defaults are Concentrated in Minority-Majority Areas: As the share of the Black and Latinx population increases in a given neighborhood, the incidence of student loan defaults climb. For example, among the New York City neighborhoods with the highest rate of student loans entering collections, all but one are majority-minority neighborhoods. Similarly, in Philadelphia, the rate of student loan default is more than twice as high in majority-minority neighborhoods as it is in majority-white neighborhoods.

Taken together, this research confirms that the cost of America’s student debt crisis falls disproportionately on Black and Latinx communities. Further, the implications of the unequal rates of student loan distress can have ripple effects across borrowers’ financial lives and their communities. These effects include negative credit reporting, wage garnishment, tax refund withholding, and federal benefit offsets—as well as difficulties securing employment, renting apartments, and accessing credit. Taken together, these can cause severe economic hardship and reinforce systemic disparities.

“Our analysis provides a window into the economic distress that borrowers of color, particularly those who are Black and Latinx, are experiencing all across the country,” said SBPC Civil Rights Counsel Katherine Welbeck. “It is critically important to sound the alarm to the vast racial disparities in the student debt crisis. As our nation looks to create a more equitable and just economy, we cannot overlook the longstanding effects of discriminatory economic policy and how our student debt crisis is a direct reflection of, and continues to perpetuate, systemic barriers and racial discrimination.”

Student Debt and Communities of Color

The student debt crisis is a civil rights crisis. Decades of research show how the student debt crisis is disproportionately borne by individual student loan borrowers of color, especially Black and Latinx borrowers. Long-standing effects of the nation’s discriminatory public policy have blocked communities from wealth-building opportunities, often leaving borrowers of color to  take on more student debt and to do so in larger amounts. These borrowers then enter a workforce marked by discrimination and pay disparities that can heighten repayment struggles. The negative impacts of this debt reinforce the larger systemic racial barriers within communities of color.

About the SBPC’s Cities Initiative

This report was prepared as part of the Student Borrower Protection Center’s ongoing partnership with city governments across the country. Between 2017 and 2020, city financial empowerment and consumer protection officials in New York City, San Francisco, Philadelphia, and Washington, D.C. worked with economists and researchers at regional banks of the Federal Reserve System to publish new research examining the prevalence and performance of student debt in city neighborhoods. Each of the resulting papers found that the student debt crisis acutely affects communities of color and exposed stark racial disparities in student loan borrower distress. Learn more at protectborrowers.org/cities.

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The Student Borrower Protection Center is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.