Borrowers' Experience With Student Loan Debt Varies Greatly by Neighborhood, Report Finds

By Owen Daugherty, NASFAA Staff Reporter

Borrowers facing distress from their student loan debt are disproportionately concentrated in majority-Black and majority-Latino neighborhoods, according to a new report from the Student Borrower Protection Center (SBPC).

The report, titled “Disparate Debts: How Student Loans Drive Racial Inequality Across American Cities,” analyzed data previously collected by regional Federal Reserve Banks from borrowers in Philadelphia, New York City, San Francisco, and Washington D.C. to determine how they are handling their student loan debt.

Borrowers living mere blocks from each other can have very different experiences with their student loans, the report found, noting that the difference in outcomes has a strong correspondence with the racial demographics of a particular neighborhood.

“The student debt crisis is hitting American neighborhoods unevenly, with communities of color paying the heaviest price,” SBPC Executive Director Seth Frotman said in a news release accompanying the report. “The racial disparities in the student loan market mirror the worst effects of discriminatory redlining, as Black and Latinx communities disproportionately shoulder the burden of student debt and distress.”

In three of the four cities — San Francisco, Philadelphia, and Washington, D.C. — borrowers living in neighborhoods where 90% or more of residents are non-white are five times more likely to fall behind on their student loans than borrowers who live in majority-white neighborhoods.

“These divergent outcomes are impossible to separate from communities’ racial makeup,” the report states. “City-level analyses make clear the role of student debt in reinforcing social stratification and segregation across neighborhoods.”

Broken down by neighborhoods within each city, the data reinforce this point.

In D.C., the researchers found that six of the eight neighborhoods where student loan debt is growing the fastest are populated mostly by non-whites. Of the 18 neighborhoods in New York City with the highest rate of student loan collections, 11 are 90% non-white and only one is majority white.

In San Francisco, the rate of student loan delinquency in neighborhoods with the largest minority populations is more than 7.5 times higher than areas with majority-white populations.

Across all of these cities, Black and Latino borrowers had taken on a higher amount of debt to finance higher education in comparison to their white peers.

The report from SBPC is the first to analyze and synthesize the city-level data to provide context, it says, adding that the findings regarding the student loan system are “both reflective of and exacerbating the nation’s systemic racial inequality and racial wealth gap.”

The findings poke holes in the long-held belief that access to education is a “gateway” to upward social or economic mobility, with the report’s authors writing that “for millions of borrowers of color, higher education does not unlock the door of economic mobility as a means to overcome systemic inequalities.”

The findings also underscore how the gap in student loan outcomes can, at times, reinforce the financial segregation that already exists in the credit markets by decades of discriminatory policies, such as redlining.

“Our analysis provides a window into the economic distress that borrowers of color, particularly those who are Black and Latinx, are experiencing all across the country,” said SBPC Civil Rights Counsel Katherine Welbeck. “It is critically important to sound the alarm to the vast racial disparities in the student debt crisis.”


Publication Date: 6/30/2020

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