Student Debt Crisis Creates ‘Vicious Circle’ of Inequality in Black and Latino Neighborhoods, Report Says

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Students of color are more likely to take on student debt and struggle disproportionately to repay it at higher rates than their white counterparts, thus perpetuating a “vicious cycle” of racially-based economic inequality, according to a study published Monday.

The report from the Student Borrower Protection Center, a consumer advocacy group, analyzed data from previous borrowers prepared by regional Federal Reserve banks and city governments in New York, Washington, DC, Philadelphia and San Francisco and reported found a commonality that predominantly black students and Latino neighborhoods are more dependent on student loans and carry a greater debt burden.

For example, in Washington, 6 of the 8 neighborhoods with the fastest growing student debt are predominantly non-white, including Anacostia, Deanwood, and Congress Heights. The average student debt balance rose 217% in several predominantly black neighborhoods, compared to a 30% drop in some of the whitest neighborhoods.

A similar trend occurred in New York, San Francisco and Philadelphia, according to the analysis. In New York City, six neighborhoods in the highest level of student loan delinquency are predominantly non-white and primarily concentrated in the Bronx, which also has the highest 90-day delinquency rate of any region in the city despite the fact that borrowers have lower median loan balances. .

A student loan is considered past due when a payment is not made by the due date, and the borrower can be considered in default if a payment is not made for an extended period, typically 120 days for a private loan and 270 days for a federal loan.

In Philadelphia, the student loan default rate is more than twice as high in predominantly non-white neighborhoods than in predominantly white neighborhoods. And in San Francisco, the student loan default rate is more than 7.5 times higher in neighborhoods with the largest non-white populations.

“America’s student debt crisis is a civil rights crisis,” the report says.

The struggle of many black and Latino borrowers to repay their debts goes back generations.

“Racial disparities throughout the student loan life cycle begin long before a promissory note is signed or even before the financial award letter arrives,” according to the analysis. “Early in borrowers’ lives, these disparities are fueled by the racial wealth gap.”

Over the years, economists have examined these a gap, finding that discriminatory and racist slavery policies in the Jim Crow era and over the past several decades have prevented black families from creating generational wealth and are exacerbated by wage disparities in employment and lack of opportunities education, including higher education, which has always been a means of increasing household income.

Neighborhood redlining – in which federal agencies in the 1930s allowed unfair lending practices that deprived black buyers of their rights – has given way to the segregation that exists today, which the analysis finds does not exist. does that reflect the worst effects of the student loan crisis.

“Borrowers in different areas of the same city may live just a few blocks away, but they may face completely unfair results from their loans,” the report said.

The net worth of a typical white family is $ 171,000, which is almost 10 times that of a typical black family and eight times a typical Latino family, according to a 2017 Federal Reserve study.

In turn, it’s no surprise that a black or Latino student has higher student loans and can’t afford to pay off their debt, said Calvin Schermerhorn, a professor of history at Arizona State University and author of “Unrequited Toil: A History of United States Slavery”.

Schermerhorn said years of studies of racial disparities in debt make it clear that the nation must “ease or write off black and Latin student debt” and invest in students so they can leave college debt behind. free and have an easier path to financial mobility.

“If you are looking to right historical racial injustices, you have to think in these terms,” he added. “There should be a way to write off the debt of those people who have been victims of structural racism and marginalized and disadvantaged.”

According to the report, 90% of black students and 72% of Latino students take out loans compared to 66% of white students. But on average, 20 years after starting college, the median black borrower still owes 95% of the original student loan balance, while the median white borrower has repaid almost 95% of the balance.

The median Latin American borrower, meanwhile, still owes over 80% of the student loan balance 12 years after graduation, compared to the median white borrower who owes 65% at the same time, according to the report.

The US-shared student debt burden, which affects some 45 million borrowers with estimated debt of $ 1.7 trillion, is just one element of “severe economic hardship” facing ” unevenly “communities of color, Seth Frotman, executive director of the Student Borrower Protection Center. , noted.

“This cost is borne only by borrowers of color, particularly black and Latin borrowers – all incurred simply because they have chosen to pursue the American dream,” according to the study.

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