Student Loan and the Racial Wealth Gap
While higher education in the US has long been seen as a ticket to upward mobility, it still is, with college graduates earning on average 75% more than those whose education ended with a high school diploma.
Unfortunately, that ticket has become increasingly expensive. Depending on the state, the likelihood of graduating from a public or private nonprofit college with debt ranges from 39% to 73%. The average federal student loan debt is $37,667 and the total average balance can exceed $40,000 if you include private Student loan.
Student loan debt weighs heaviest on members of racial and ethnic minority groups, who often have far fewer financial resources to draw on—a disparity known as the racial wealth gap.
What is the racial wealth gap Student loan?
For decades, economists have noted the significant disparity in net worth between white households and racial and ethnic minority groups in the US, Student loan known as the racial wealth gap.
For example, the Federal Reserve reports that the median net worth of White households in 2019 (the most recent data available) was $188,200, compared to $24,100 for Black households and $36,200 for Latinx/Hispanic households. Other race/ethnicity categories, including households identifying as Asian, Native American, Alaska Native, Native Hawaiian, Pacific Islander, or with more than one ethnic identity, reported a median net worth of $74,500.
One reason for the wealth gap is also the racial wage gap. The same Federal Reserve study found that the median income for white households was $69,000, compared to $40,300 for black households and $40,700 for Latinx/Hispanic households.
Net worth shows strong differences across groups defined in terms of education, racial or ethnic background, urbanicity, and housing status. These differences generally reflect income, but wealth differences are large.
How student debt can widen the wealth gap
Three major education-related factors—graduation rates, type of school attended, and type of degree earned—contribute to the racial wealth gap. Here’s a closer look at each and its impact.
Graduation rates matter
According to a 2019 report from the National Center for Education Statistics, Black and Latinx/Hispanic students who start college are significantly less likely to finish than their white counterparts. It found that 64% of white students at baccalaureate-granting institutions graduated within six years, compared with 54% of Latinx/Hispanic students and 40% of black students. Asian American students had the highest graduation rate at 74% after six years.
Unfortunately, students who can check the box for “some college” on their job applications—but who don’t have an actual degree—fare a little better in the labor market than their peers who hold on to high school diplomas.
According to 2020 data from the Bureau of Labor Statistics (BLS), workers 25 and older with some college had median weekly earnings of $877, compared to $781 for workers with only a high school diploma — a difference of nearly 9%. On the other hand, bachelor’s degree graduates had average weekly earnings of $1,305—about 65% more than those with only a high school diploma.
In other words, students who leave college without graduating often have little to show for it, except student loan debt that can prove difficult—if not impossible—to pay off.
The type of school makes a difference
Regardless of race, students who attend for-profit colleges are far more likely to fall behind on their Student loan payments. Looking at adults ages 18 to 39 who borrowed to pay for their education, the Federal Reserve found that 24% of those who attended private for-profit colleges were behind, compared with just 9% of those who attended public colleges and 7 % who studied in private colleges. . – For-profit colleges.
Compounding the problem, students who attend for-profit schools tend to borrow more money overall. A 2020 American Association of University Women study, for example, reports that women who attended a for-profit college for four years borrowed an average of $42,778, compared to $29,611 for public colleges and $32,086 for private non-profit colleges. . .
What’s more, several studies have shown that many employers believe that for-profit degrees are worth less than degrees from public or private non-profit schools. And a 2018 working paper from the National Bureau of Economic Research (NBER) noted that students at for-profit schools not only earned below average but were also less likely to be employed.
Enrollment data show that black students are disproportionately more likely to attend for-profit schools. As of fall 2019 (the most recent data available), NCES noted that “the percentage of undergraduate students at private for-profit four-year institutions who were Black (29%) was more than double the percentage at private nonprofits (12%). ) and public (11%) four-year institutions.” Latinx/Hispanic students represented 18% of undergraduates at private four-year institutions, compared to 13% at private not-for-profit schools and 20% at public institutions.
There are especially for-profit schools that mislead students by making false promises while encouraging them to take out federal Student loan. In March 2021, the US Department of Education announced that it would make it easier for students in such cases to use the federal “Repayment for Borrower Protection” or “Borrower Protection” laws to get their federal Student loan debt canceled. The department estimates the change could help nearly 72,000 borrowers receive $1 billion in loan cancellations.
Some degrees pay more than others
Regardless of the type of school attended, black students are underrepresented in the types of college majors that lead to higher salaries, according to a 2016 study by the Georgetown University Center on Education and the Workforce. It found that while black residents represent 12% of the US population, black students account for only 8% of general engineering majors, 7% of math majors, 7% of finance and marketing managers, and 5% of computer engineering majors.
The Georgetown Report does not advance a theory that explains why the disparity exists. However, a Pew Research Center survey found that “a majority of blacks in STEM positions believe limited access to quality education, discrimination in hiring and promotion, and the underrepresentation of blacks and Hispanics in science, technology, engineering, and math occupations are the main reasons. Lack of incentive to do.”
The long-term impact of student debt
Student debt can affect many aspects of people’s lives for years or decades. While that’s true for all races, it may disproportionately affect black students, who are more likely to take on debt in the first place. The Federal Reserve’s U.S. The most recent report on the financial well-being of families found that “adults carrying student loan debt report lower levels of financial well-being than similar adults with no outstanding debt.”
In particular, student loan debt can hinder saving for retirement. “40 percent of adults under 40 who had outstanding student debt felt their retirement savings plan was currently on track. This compares to 56% of those who had previous debt and 55% of those who had never incurred debt, “Federal Reserve Reports
Similarly, a 2016 Consumer Reports survey found that 37% of respondents said they delayed saving for retirement or other financial goals because of student loan debt, 28% put off buying a home, and 12% put off getting married. were kept
When do student loan repayments resume?
President Joe Biden has suspended student loan payments and set interest rates at 0% to help ease financial hardship during the COVID-19 pandemic. The administration has extended the moratorium several times, and until it happens again, Student loan repayments are set to resume after December 31, 2022.
What is a Pell Grant?
The federal Pell Grant program provides need-based grants to improve access to postsecondary education for low-income undergraduate and certain graduate students. Unlike Student loan, Pell Grants do not have to be repaid. For the 2022-2023 year, the maximum grant is $6,895, and you can receive up to 12 terms (approximately six years) of Pell Grant awards. You must complete the Free Application for Federal Student Aid (FAFSA) each year you wish to apply for a grant.
The Biden administration announced debt relief for certain student loan borrowers. Department of Education Pell Grant recipients can receive up to $20,000 in debt cancellation while non-Pell Grant recipients can receive up to $10,000 in relief if they meet income requirements.
What is the FAFSA?
The FAFSA—Free Application for Federal Student Aid—is the official form that prospective and current students use to apply for federal grants, Student loan, and work-study programs to pay for college. Additionally, many colleges use the FAFSA to distribute financial aid and scholarships.
The US The Department of Education collects and processes your FAFSA and uses the information to determine what you and your family can afford for college—and how much aid you qualify for. You must renew the FAFSA each year you are in school to remain eligible for student aid.
The bottom line
Because of the racial wealth gap in the US, members of racial and ethnic minority groups must borrow more money for education than their white peers. For those moving toward a well-paying career, student debt can prove to be a good investment; However, debt only exacerbates the problem for students who fail to graduate—or who graduate with an undervalued degree.