Student loans prey on minority students

College students of color are more likely to borrow and to borrow more, while making less after graduation

Minority students are more likely to have to borrow to attend college, and to borrow more to graduate, while on average making less than whites to repay the loans after graduation. (Shutterstock)

By Ted Cox

Student loans are a drag on the economy — and on college alumni. But they’re especially a problem for minority students.

A new story published this week by the MarketWatch.com financial news site explained why in simple terms. Because minority students generally come from families with less wealth than white students, they’re more likely to need to borrow to attend college, and to borrow more to get through.

On the other side of the equation, they’re more likely to make less upon graduation, complicating repayment.

Student loans are already a hot-button issue on the campaign trail in the 2020 presidential race. U.S. Sen. Bernie Sanders of Vermont has proposed a $1.6 trillion loan-forgiveness program. He’s targeted graduates in low-wage fields, saying, “You are not truly free when you cannot pursue your dream of becoming a teacher, environmentalist, journalist, or nurse because you cannot make enough money to cover your monthly student-loan payments.”

According to a story this week in The New York Times, fellow presidential candidate U.S. Sen. Elizabeth Warren has proposed a $640 billion forgiveness program, again citing teachers, saying, “Student-loan debt hits America’s teachers particularly hard.” Former Congressman Beto O’Rouke of Texas has proposed cancelling all student loans for teaching grads.

But the problem is even more acute for minority students, whether they’re in education or engineering. According to Demos, which MarketWatch described as a “left-leaning think tank,” almost half of white students attending a two-year college graduate with debt, 45 percent, while more than two-thirds graduate from four-year colleges with debt, 68 percent. For African-American students, those figures rise to more than half at two-year colleges, 58 percent, and more than three-quarters at four-year schools, 82 percent.

Demos has found that African Americans borrow more than whites to attend college whether at two-year, four-year, private, or for-profit colleges, but those for-profit colleges — which tend to market to minority students in ads on, for instance, public transportation in cities — are especially problematic. According to Demos, white students typically graduate from a for-profit college with $41,135 in debt, but for African Americans that average is $42,044.

The problem is exacerbated in that African-American private universities tend to be less well-endowed than, say, private Ivy League schools, thus less capable of offering substantial financial assistance. It’s rare that an institution like Morehouse College might invite a billionaire like Robert Smith to give the commencement address — only to see him instantly wipe away all the graduates’ student loans at the end of his speech, a gift announced earlier this year with an estimated worth of $40 million.

But that illustrates the depth of the problem and the extent some people are willing to go to address it.

The New York Times reported that the U.S. Department of Education already has a forgiveness program for those with student loans who put in 10 years of service in the government or at a nonprofit, signed in 2007 by President George W. Bush, but in the 18 months after borrowers first became eligible in 2017, “73,554 people applied to have their student loans wiped out. And 73,036 were turned down — a rejection rate of 99.3 percent.”

Teachers, again, were especially irked. In fact, the American Federation of Teachers filed suit against Education Secretary Betsy DeVos earlier this month charging “gross mismanagement” of the program.

As it turned out, only students with federally subsidized Direct Loans were eligible to have their debt forgiven. Reforms under the Obama administration made all new loans Direct Loans as of 2010, which means that more people will likely qualify for the forgiveness program in the years ahead, but the Times estimated that $870 billion is now outstanding on those loans, with almost half of that lent to grads likely to qualify, “and one in four American workers is in a job eligible for the forgiveness program.”

That puts the federal government on the hook for a substantial loan forgiveness, whether or not Sanders or Warren has their way ultimately.