The Washington PostDemocracy Dies in Darkness

Middle-class minorities are most at risk of falling behind on student loans, report says

(Matt Rourke/AP)
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Middle-class African Americans and Hispanics are disproportionately falling behind on student loan payments, signaling that higher education is failing to ward off financial instability for minorities, according to newly released data.

Researchers at the Washington Center for Equitable Growth analyzed delinquency rates, average loan balances and median income at a Zip-code level and found higher numbers of past-due student loans in predominantly African American and Hispanic communities.

Neighborhoods in the northeastern part of the District, east of the Anacostia River and in adjacent suburbs — all of which have the largest shares of black and Hispanic populations — have the area’s highest concentrations of student loan delinquencies, according to the data released Wednesday.

The same pattern is evident in Los Angeles, where areas with large minority populations, such as Compton, Lynwood and Huntington Park, have the highest levels of past-due student debt.

College is not the great equalizer for black and Hispanic graduates

Researchers found that a correlation between the share of minorities in a Zip code and loan delinquency rates is highest for people in the middle of the income distribution. Among Zip codes with a median income of around $60,000, those with large Hispanic populations have much higher rates of past-due loans than those without. Delinquency rates are similarly high in predominantly African American neighborhoods with median incomes above $60,000, according to the center.

The study released Wednesday is the latest in a series using granular data to explore relationships between student debt, race and socioeconomics. The first installment, released in December, found that communities with lower levels of debt often experience higher levels of delinquencies, a conclusion backed by data from the Federal Reserve Bank of New York that shows the largest number of people in default have less than $5,000 in student debt.

This captivating map details student debt in the Washington area

“These data tell us that debt-financed higher education is not the solution to racial inequality, since it doesn’t overcome longstanding economic disparities. It may even be contributing to the problem,” said Marshall Steinbaum, a research economist at the center, which partnered with Generation Progress and the Center for American Progress’s Higher Ed, Not Debt campaign on the study.

He added: “The fact that, among minorities, the middle class is most strongly affected by delinquency implies the problem is structural racism within the U.S. higher education system, credit and labor markets, and the distribution of wealth — not poverty‪.”

African American and Hispanic households have a fraction of the wealth of whites and have for decades been shut out of traditional ladders of economic opportunity such as homeownership. Even when credit flowed through minority communities, after years of banks denying mortgage financing, blacks and Hispanics were often steered into high-cost loans that many could not afford once the housing market crashed.

Those who managed to avoid foreclosure still watched the value of their properties plummet, especially if they lived in minority neighborhoods. And because so much of African Americans’ and Hispanics’ wealth is concentrated in their homes, the losses crippled those communities.

Economists at the Federal Reserve Bank of St. Louis found that college-educated Hispanics were hit particularly hard by the collapse of the housing market, with their net worth plummeting 72 percent between 2007 to 2013, compared with African American graduates with 60 percent declines.

As a result of having limited savings or other assets to cover the cost of college, African American families borrow heavily to pay for it. Researchers at the liberal think tank Demos found 4 out of 5 black graduates take out loans to attend public colleges, compared with less than two-thirds of whites.

African American students who borrow come out with more debt than their peers, often facing dismal job prospects. College-educated blacks have twice the unemployment rate of their white counterparts.

Economists at the St. Louis Fed said state and federal government jobs have historically offered African Americans entrance to the middle class, but budget cuts have put pressure on those sectors and eroded wage gains. In contrast, high-tech jobs have almost exclusively created wealth for white and Asian men.

A growing body of research suggests African American students are overrepresented in studying fields that lead to low-paying jobs. Although the findings reflect personal choice, researchers at the Georgetown University Center on Education and the Workforce say it is also the result of black students being concentrated at open-access colleges with a limited menu of majors.