Why low-income borrowers should avoid for-profit colleges

Source: Jillian Berman, MarketWatch, February 8, 2017

Student loans are meant to be an engine for economic mobility, providing students who can’t afford a college education the opportunity to get one. But new data suggest student debt can actually exacerbate inequality if a borrower chooses the wrong school. Five years after beginning to repay their student loans, typical low-income borrowers have repaid none of their original balance, whereas the typical borrower from a higher income family has repaid about 19%, according to a working paper distributed by the National Bureau of Economic Research Monday. The paper, authored by three staffers affiliated with the Treasury Department, matches tax data with information in the Department of Education’s Student Loan Data System on borrowers who entered repayment between 2004 and 2009. One of the main reasons for the difference: their diverging employment outcomes. About 12% of students from families earning less than $30,000 are unemployed five years after leaving school and another 36% are working, but earning less than $25,000. Just 8% of students from families earning $75,000 to $100,000 are unemployed and 27% are working, but earning less than $25,000. … The paper isn’t the first to expose the challenges borrowers from low-income families face paying for college and repaying student loans. A well-documented body of research indicates that white, wealthier borrowers rely less on student debt to finance college and when they do, they’re more successful at paying it back. But the study adds some nuance into why that may be: Low-income borrowers tend to be crowded into schools where they struggle to graduate and get decent-paying jobs. …