Black-white disparity in student loan debt more than triples after graduation

Oct. 31, 2016

The negative implications of student debt for black college graduates are much more pronounced compared to white graduates, a new report by the Brookings Institution. Four years after graduation, the black-white debt gap more than triples to $25,000 more debt for black college graduates compared to white college graduates, a disparity much larger than previously reported differences in debt at graduation of around $7,400.

More than 44 million Americans owe a combined $1.3 trillion in student loan debt, with around one in 10 student loans in delinquency status. This new Brookings report highlights that when assessing racial disparities regarding student debt, pursuing a college education is a greater financial risk for black college graduates than their white counterparts. This finding warrants heightened attention as the cost of a college education continues to increase; average tuition at public four-year universities in North Carolina increased by 76 percent since 2009 when adjusted for inflation.

Other informative findings in the Brookings report regarding racial disparities in student debt include:

• Black students hold substantially more debt by age 25 compared to their white counterparts. This outcome is evident even after controlling for family income and wealth, indicating that differences in postsecondary and labor market experience contribute to the debt gap.
• Black college graduates are three times more likely to default on their debt within four years of graduation compared to white graduates.
• Nearly half of black graduates owe more on their federal undergraduate loans after four years than they did at graduation, compared to just 17 percent of white graduates.
• Black college graduates enroll in graduate school within four years – particularly for-profit graduate enrollment – at a much higher rate than their white peers, which greatly contributes to the overall black-white debt gap. Black graduates are almost twice as likely as white graduates to accumulate graduate school debt (40 percent versus 22 percent).
• Disproportionate increases in graduate school enrollment for black college graduates comes alongside evidence of growing racial gaps in labor market outcomes, suggesting graduate school may for some students be a response to the weak post-recession labor market. The Great Recession hit black college graduates much harder than white graduates, with evidence highlighting that employers are more likely to discriminate against minorities in weak labor markets.

More deliberate efforts to collect information on borrower race and incorporating it into administrative databases that track borrower outcomes is highlighted as one opportunity to gain better and more frequent insight regarding the consequences of racial debt disparities. Furthermore, more evidence on the payoffs of specific types of graduate education, particularly in the rapidly-growing for-profit sector, is highlighted as an area that warrants greater attention.

Boosting investments in public colleges and universities and increasing need-based grant aid are actions state lawmakers can take to address this issue. State funding per student at public four-year universities has declined by 15 percent since 2008 and no additional state funding for need-based grant aid has been provided during this time. Ensuring that a college education is affordable for all North Carolina students and families would help in combating the racial disparities in student debt highlighted in this report.