By Owen Daugherty, NASFAA Staff Reporter
Black student loan borrowers are nearly twice as likely to never be able to pay off their debt because they are not keeping up with their payments and their balances are increasing, according to projections in a new study.
By comparison, about 7% of white borrowers and approximately 8% of Hispanic borrowers were projected to never be able to repay their loans. The study by the JPMorgan Chase Institute used non-identified data from 301,583 borrowers with a Chase checking account, as well as data from the Experian credit agency, finding 13% of Black borrowers will likely never repay their student loan debt.
“Put simply, our findings suggest that systemic conditions make it such that the Black community experiences less help with student loan repayment despite facing comparatively more strain from student loan repayment,” the study found. “This issue is likely a major contributor to the different rates in loan repayment progress across race groups.”
The median annual amount paid by Black borrowers was $212 less than the $1,850 they were scheduled to pay, the study found, while white borrowers generally paid more than they were required to.
This is likely due to the finding that the median income of Black student loan borrowers is about $12,500 lower than the income of white student loan borrowers, according to the study.
Contributing to these disparities in borrowers’ ability to pay back their student loans is the racial gaps that exist when it comes in income and wealth, the study said, and reducing those gaps would “boost families’ ability to pay for tuition and repay student loan debt among segments of the population most burdened by student loan debt.”
Furthermore, Black and low-income borrowers are more likely to fall into a “debt trap,” which happens when student loan balances increase rather than decrease over time, even as borrowers make payments.
That finding takes on added importance as millions of borrowers aren’t currently making any payments on their student loans while they take advantage of the administrative forbearance period that suspended interest and payments on federal student loans due to the COVID-19 pandemic.
As the study noted, the relief from the Coronavirus Aid, Relief, and Economic Security (CARES) Act “will be important to help people smooth consumption but will likely result in families shouldering the debt burden for a longer period.”
The study also analyzed who was paying down someone’s student loan debt, finding that nearly 40% of individuals involved in student loan repayment are helping someone else pay off their student loan debt, with 27% holding no student loan debt themselves.
“Understanding how families share the burden of student debt is important for the design of both loan origination and repayment programs insofar as policies to ameliorate student debt burden ought to consider not only the borrower but also the network of people the borrower relies upon,” according to the study.
Along those same lines, the study found Black borrowers are less likely to be making progress on their loans and are much less likely to be getting help in paying their loans than their Hispanic or white counterparts.
“Although similar portions of all three racial groups receive help, regardless of whether they are making payments or not, a much larger portion of Black borrowers are making no payments and receiving no payment help,” the study stated.
The findings shed further light on the different obstacles various borrowers face, noting that trends for one group may not bear out with another and that “certain segments of the student loan population are significantly burdened by their debt, especially low-income borrowers, the elderly, and Black borrowers.”
Publication Date: 10/14/2020