East of the Anacostia river, where the median household income hovers at about $30,000 a year, residents with student loans have balances that are either below the national average of $24,271 or between 10 percent and 25 percent higher. Still, they are three times as likely to be at least nine months behind on loan payments than people just across the river with twice as much debt.
One of the region’s highest concentrations of student loan delinquencies is in the Fort Myer section of Arlington, home to an army base of the same name. There, the median income is $25,000, about the same as the average loan balance.
The regional disparity is especially striking in D.C. west of Rock Creek Park, where the median household income is roughly $100,000 and the debt load can climb as high. Virtually no one in Chevy Chase or Friendship Heights is delinquent on their loans, despite the out-sized student debt in those neighborhoods.
The granular analysis supports a body of research that shows the real student debt crisis is concentrated among people who owe relatively small amounts for degrees that they never received. Economists at the Federal Reserve Bank of New York found that the largest number of people in default have less than $5,000 in debt and never graduated. Dropping out of college lowers the chances of finding a job that pays enough money to make it easy to manage student loans.
What’s more, borrowers from impoverished households are unlikely to be able to rely on parents or other family members to help cover loan payments. Even those who are current on their loan payments are still struggling; student debt payments absorb about 7 percent of gross income in zip codes where the median household earnings are $20,000, but eats away just 2 percent of pay in the highest-income zip codes.
Across the country, there is an inverse relationship between income and delinquency rates. As the median income in a zip code falls, the number of people behind on their loan payments grows, even if they have below-average balances. That relationship bears a resemblance to the subprime mortgage crisis, where low-income neighborhoods with relatively small mortgages suffered the most.
“If you think about the effects of redlining or the subprime mortgage crisis … the dense history of high delinquency for those with the least access to credit has really been an inequality issue,” said Kavya Vaghul, a research analyst at the Washington Center for Equitable Growth.
It’s difficult to draw any conclusions about educational attainment from the map, which uses Experian credit data and income data from the American Community Survey. But it’s likely that people with large debt loads attended graduate school, which accounts for 40 percent of the nearly $1.3 trillion in student loans.
Undergraduates can only borrow up to $26,000 from the government, though they could borrow more from private lenders. It’s possible the data is capturing more than one borrower in the household, but it goes to reason that people with advanced degrees, and therefore better earning potential, would have an easier time managing their loans. Just 7 percent of borrowers with graduate degrees have defaulted on their student loans, according to the U.S. Department of Education.
That doesn’t mean high-earners are not burdened by their student debt. High debt loads can have pernicious effects on economic engagement, whether that means delaying the purchase of a house or even getting married. Throw in the high cost of living, and those borrowers may have a hard time building wealth.
“People living in higher-income zip codes are still actually shouldering a decent amount of debt,” say Rohit Chopra, senior fellow at the Center for American Progress. “Yes, maybe that debt is the ticket for them to get income and live in that neighborhood, but it still means they’re still paying a decent amount in student loans and high housing costs. Put that all together and that means the less they are able to save for retirement or put away for a down payment.”
Chopra said student loan servicers, the middlemen who collect and apply payments, play a big role in ensuring that borrowers can get a handle of their debt, whether they owe $20,000 or $200,000. Placing borrowers in a plan that caps monthly payments to a percentage of income or gradually increases payments could give them breathing room to save and build wealth.
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