Three Monmouth University professors representing different academic disciplines recently conducted a study that explores the impact of student debt on borrowers of different races and economic classes. The resulting paper, “Intergroup disparity among student loan borrowers,” was recently published in the Review of Evolutional Political Economy Journal by faculty members Robert Scott, Ph.D., professor of Economics, Finance, and Real Estate; Kenneth Mitchell, Ph.D., professor of Political Science and Sociology; and Joe Patten, Ph.D., associate professor of Political Science and Sociology.
Using recent the most recent available data from the Federal Reserve Bank of New York’s Consumer Credit Panel and the Survey of Consumer Finances, the paper establishes that the current student loan system “creates significant debt traps for many Black and first-generation students,” and will continue to do so until major reforms are made.
To draw this conclusion, the research uses stratification economics, which assert that “dominant groups embed unfair advantages into new or reformed policy areas.” In the case of student loans, members of certain racial and economic groups are inherently unable to take on and pay back loans in the same way as their white counterparts, creating a cycle of “discriminatory practices that perpetuate financial and social inequities.”
According to Scott et al., a number of factors contribute to this uneven playing field for Black and first-generation borrowers. One is the predatory practices of for-profit colleges, which are twice as likely to exist in Black and Hispanic communities as they are in white ones, and account for almost half of all loan defaults in the U.S. 80% of Black students enrolled in for-profit colleges were found to drop out over a six-year period with an average of $40,000 of debt, which greatly increases the likelihood of payment delinquency and loan defaults.
As many Black and first-generation students enter the professional world saddled with debt, they are also less likely than their white counterparts to be able to get out from under it, often receiving less family financial assistance that can ease the burden of their payments. Scott et al. attribute this to the unequal distribution of intergenerational wealth in this country, and explain that borrowers who have less of a financial “safety net” from family are more affected by penalties, fees, and other costs on top of the initial loan amount.
The research conducted by Scott et al. also shows a trend of declining wealth among Black households in spite of possession of a bachelor’s degree, with significant differences in the median income of white first-generation graduates in comparison to Black first-generation graduates. This cycle ultimately leaves many of these groups unable to ever generate significant personal wealth, with extra earnings going toward interest and delinquency fees instead of homeownership, business ventures, and retirement investing.
Scott et al. conclude that the student loan debt system “preserves socioeconomic hierarchies and will continue to exclude Black and first-generation students disproportionately from the income and wealth benefits of higher education absent major reforms.” And while they acknowledge that there is no one-size-fits-all solution to this problem, Scott et al. recommended that “the federal government should stop funding poor-performing and predatory for-profit colleges and redirect this money to a publicly funded college model, baby bonds, Pell grants, and other sources that provide the greatest benefits for Black and first-generation students.”