Black, Latino and low-income college students are disproportionately burdened by student debt. (AP Photo/The Sentinel, Dennis R.J. Geppert)

A day away from crossing the stage at Montclair State University's graduation, Evangelia Stone reflects on her journey from community college, the "amazing" professors she met along the way and the $50,000 in student loans she took out to get a bachelors' in sociology.

Stone, the first in her family to graduate from college, qualified for the maximum award in Pell Grants, the federal program that provides money for the country's poorest students to attend college. The free aid was enough to cover all her costs at Atlantic Cape Community College in southern New Jersey, but it barely paid for a quarter of the more than $20,000 in-state tuition, room and board at Montclair. The school offered Stone no scholarships or grants, but she received several thousand dollars from the New Jersey Commission for the Blind and Visual Impaired. It wasn't enough.

"Nobody should have to spend this much money, period. But in-state students going to public universities...the fact that I'm leaving with this much debt is absurd," said Stone, 25, who plans to pursue a master's degree in social work at Rutgers University this fall. "Higher education is supposed to be a public good, not just a private purchase that wealthy students get to enjoy."

Amid state cuts in higher education funding and modest increases in federal grant aid eclipsed by rising tuition, African American, Latino and low-income students like Stone must borrow to get a degree, according to a new report from liberal think tank Demos.

Eighty-four percent of college students with Pell grants graduate from four-year public schools with debt, compared with less than half of students without the need-based grants, the report said. While less than two-thirds of white graduates from public schools borrow, four out of five black graduates take out loans for college. And black students who do borrow come out with more debt than their peers.


"We have now entered a new phase where student borrowing is now the primary way young people pay for college," said Mark Huelsman, a policy analyst at Demos and author of the report. "This shift places an unequal burden on communities that have historically been denied an opportunity to gain and leverage wealth."

He added: "While higher-income, predominately white, households can hope to minimize borrowing by using tax-advantaged savings and investment accounts, home equity and other mechanisms, low-income households by and large cannot use these tools."

In the last few decades, the cost of college has outpaced inflation and wages. States reversed course on investing in higher education, and public colleges raised tuition to offset the loss of funding. Federal grant aid for low-income students, which students of color often rely on, barely covers a third of the cost of college, according to the Institute for College Access and Success.

Stone discovered the limitations of her Pell grant three semesters shy of graduation. Between her time at Pace University in New York, community college and taking courses over the summer, Stone used up all of the federal need-based aid she could receive. And that meant she had to borrow.

Using data from the Education Department and the Federal Reserve’s 2013 Survey of Consumer Finances, Huelsman found that graduates with Pell grants borrow at far higher rates and higher amounts than their middle- and upper-income counterparts at two- and four-year institutions. That is regardless of whether they attend public or private colleges.

The trend of borrowing among those who can least afford it signals the erosion of decades of federal policy instituted in the 1960s to give needy students access to higher education. It's striking in light of another study from the New America Foundation that found that 68 percent of public colleges provide scholarships to students who don't need financial aid.

Rather than help poor students attend college, state schools are using their resources to attract high-achieving, affluent, out-of-state students who can pay more tuition and boost the college's national rankings. By bringing in more wealthy out-of-towners, these public schools are becoming "bastions of privilege," wrote Stephen Burd, a senior policy analyst at New America and the author of the report. And that is often to the detriment of low-income kids and students of color.

Despite getting good grades in high school, New Jersey native Brianna Battle, 20, received no scholarships or grants to attend Rutgers University in New Brunswick, N.J. Battle's parents stashed away enough money in a 529 college savings plan to cover the first two years of in-state tuition, but by her junior year the political science major had to borrow. Battle, who is African American, expects that by the time she graduates in 2016 she will be on the hook for about $20,000 in student loans.

"No matter what I decide to do after graduation I know I'm going to be in a lot of debt," she said. "Going to grad school would be great, but that's just another expense that I'm going to have to pay back."

A body of research suggests that taking out small loans to pay for college is a manageable expense for graduates, but borrowing more than $10,000 could be detrimental to students of color or students without family resources to buffer against the risk of borrowing, according to the Demos report. High debt load can also lead students to drop out of college, which can make it more difficult to repay the loans.

According to Demos, black and Latino students are dropping out of college with debt at higher rates than white students. At all schools, almost 40 percent of black borrowers drop out, compared to 29 percent of whites. More than two-thirds of black and Latino student borrowers at for-profit, four-year schools drop out. Meanwhile, nearly a third of low-income student borrowers at public four-year schools drop out, a rate 10 percent higher than student borrowers on the whole.


Across the racial and socioeconomic spectrum, Americans with student debt are delaying home and auto purchases, according to the Federal Reserve, a trend that stands to dampen economic growth. But the impact of student debt is more pronounced for black and Latino households that have a fraction of the wealth of whites and have for decades been shut out of traditional ladders of economic opportunity, according to Demos. And in many ways the same can be said for low-income households of all races.

"We have created a system in which more underrepresented students take on debt and drop out with debt, thereby saddling communities of color and those with modest means with substantial disadvantages as they enter the workforce," Huelsman said. "We also see worrying signs around the impact of student debt on the ability to build wealth and assets, find a satisfying or civic-minded job or start a business."

Demos has sketched out a plan, the inspiration for the Democrats' Debt-Free college initiative, for the federal government to award grants to states that increase spending on higher education. That way fewer students would have to take on high debt loads to attend public colleges.

The plan is gaining support from Democratic presidential hopefuls such as Sen. Bernie Sanders (I-Vt.) and former Maryland governor Martin O'Malley. And Hillary Clinton campaign manager Robby Mook recently discussed the idea during a CNBC interview, signaling that the Democratic front-runner may embrace the plan.

Sen. Bernie Sanders (I-Vt.) introduced legislation to eliminate undergraduate tuition fees. The presidential candidate said the federal government should pay for the initiative by imposing a tax on Wall Street. (YouTube/Bernie Sanders)

"These policies are developed on a principle of shared responsibility — by states, the federal government and students — and are based in the historical promises by states and the federal government to provide an affordable, valuable degree to students regardless of race or class," Huelsman said. "As we have seen, from high borrowing to substantial numbers of indebted dropouts, we have yet to live up to that commitment."

Want to read more about the cost of college? Check out these stories:

A way to pay for college that doesn't involve borrowing money

What to do when you haven't saved much for your kid's college education

How to negotiate a better financial aid package

How to read a financial aid award letter