The Debt Divide: The Racial and Class Bias Behind the “New Normal” of Student Borrowing

Source: Mark Huelsman, Dēmos, May 2015

From the summary:
Today, taking out loans is the primary way individuals pay for college—a major shift in how our nation provides access to higher education. While concerns about the growth in college costs and student debt are nearly universal, much of this concern focuses on how college debt is impacting the economic well-being of college graduates and our overall economy. What has been less understood, or examined, is how this shift to a debt-based system impacts our nation’s historical commitment to ensuring everyone—regardless of race or class—can afford to go to college. We need to understand whether or not the “new normal” of debt-financed college is having an impact on our ability to make good on that fundamental promise.

This report, The Debt Divide, provides a comprehensive look at how the “new normal” of debt-financed college impacts the whole pipeline of decision-making related to college. This includes, whether to attend college at all, what type college to attend and whether to complete a degree, all the way to a host of choices about what to do for a living, and whether to save for retirement or buy a home. In an America where Black and Latino households have just a fraction of the wealth of white households, where communities of color have for decades been shut out of traditional ladders of economic opportunity, a system based entirely on acquiring debt to get ahead may have very different impacts on some communities over others.

Our analysis, using data from three U.S. Department of Education surveys, the Federal Reserve’s 2013 Survey of Consumer Finances, and existing academic literature, reveals a system that is deeply biased along class and racial lines. Our debt-financed system not only results in higher loan balances for low-income, Black and Latino students, but also results in high numbers of low-income students and students of color dropping out without receiving a credential. In addition, our debt-based system may be fundamentally impacting the post-college lives of those who are forced to take on debt to attend and complete college. Our findings include:
● Black and low-income students borrow more, and more often, to receive a bachelor’s degree, even at public institutions. ….
● Associate’s degree borrowing has spiked particularly among Black students over the past decade. ….
● Students at for-profit institutions face the highest debt burdens. ….
● Black and Latino students are dropping out with debt at higher rates than white students. ….
● Graduates with student loan debt report lower levels of job satisfaction when initially entering the workforce. ….
● Average debt levels are beyond borrowing thresholds that are deemed by research to be “positive.” ….
● While those with a college degree are more likely to save or buy a home, student debt could be acting as a barrier. ….