While much research has been dedicated to the disproportionate amount of student loan debt that black borrowers take out compared to their white counterparts and the unique struggles they face with repayment, a new study found that these disparities have long-term effects on the difference in financial health between races as they enter and navigate the workforce.
In their new report, "Racial Disparities in Student Debt and the Reproduction of the Fragile Black Middle Class," published in the journal, Sociology of Race and Ethnicity, authors Jason Houle and Fenaba Addo, professors at Dartmouth College and the University of Wisconsin-Madison, respectively, argued that “it is plausible that student debt is a new mechanism by which racial and social and economic inequalities are reproduced across generations.”
“Getting a postsecondary education in the United States comes with the expectation of upward social mobility and is increasingly necessary for attaining a living wage. But in an era of rising college costs and declining support for higher education, black young adults start their careers deep in the red, take on far more financial risks, and reap fewer rewards from their education than do whites,” they wrote.
Using data from the National Longitudinal Survey of Youth 1997, which has continued to interview the cohort through 2015-16, the authors looked at young adults with student debt at ages 20, 25, and 30. They found, as supported by prior research on this topic, that black young adults are 85.8 percent more likely to accumulate student loan debt than white students, and at much higher levels. The authors attributed this phenomenon to a combination of black students being more likely to come from more disadvantaged backgrounds with less financial guidance, leave college without a degree, and attend poorly-performing institutions.
“... To the extent that student debt is a crisis, it is more of a crisis for black youth, which may have consequences for the next generation of the black middle class,” they wrote.
The authors found that not only do black students begin their careers with more debt, but this black-white disparity in debt grows significantly over time—increasing by 6.7 percent each year—which the authors attributed to the fact that white students are able to pay down their debt more quickly. They found that between 20 and 25 years old, black students held 13 percent less wealth than white students, which grew to 23 percent as they reached 30 years old. While white adults double their wealth over this period of time, black adults instead experience “negligible wealth gains.”
The authors argued that while black students “benefit socially and economically from postsecondary education,” as costs remain high and they continue to take on debt to fund their education, they will continue to “fall further behind whites ... an example of predatory exclusion.”
“The results from our decomposition analyses suggest that these racial disparities in debt and debt burden are wide enough to contribute to a significant minority of the racial gap in wealth among the current cohort of college going youth,” they wrote. “Our estimates indicate that if black young adults had equivalent student debt levels to white young adults, the racial wealth gap in young adulthood would be reduced by about 10 percent. Our study therefore provides at least some support for recent claims that student debt may be a mechanism by which racial gaps in wealth are reproduced in the latest generation of young people."
Publication Date: 10/23/2018