In the student debt crisis, black borrowers are hit the hardest.
They borrow at a higher rate than any other group: 87% of black students borrowed federal loans compared to 65% of Latino students and 60% of white students, according to an analysis of government data by the Center for American Progress, a public policy think tank.
And they are more likely to default on their loans than other groups, which can take a long-lasting blow to credit scores. Nearly half of all black students who enrolled in 2003-2004 defaulted on at least one loan over the next 12 years, compared with 1 in 5 white students during the same period, according to an analysis by Robert Kelchen, assistant professor. of higher education at Seton Hall University.
Federal loan default it occurs after nine months of late payments. Debt collectors can sue or go after borrowers; the government can garnish your paychecks; and they miss the opportunity to reduce or stop payments, options that are still available to those who have not defaulted.
But rising debt doesn’t tell the whole story of why African American students don’t meet their obligations. Experts say that while there are social and economic challenges that put black borrowers more likely to default, there are also strategies that students can use to help reduce that risk.
Obstacles for Black College Students
They have less generational wealth. Social and employment inequalities have led to lower accumulated wealth (home values, investments, and savings) among black families compared to white families, according to the Institute for Economic Policy. In 2013, white families in an EPI survey had a median wealth of $ 134,230 compared to a median of $ 11,030 among black families. That means black students have fewer out-of-pocket resources to pay for college, leading to more loans.
They may be the first in your family to go to college. According to the US Department of Education, 1 in 7 black students is the first in their family to go to college. Parents of first-generation students may not have the savings, planning experience, or familiarity with financial aid levers that families with a long college tradition have.
“Parents want to do everything they can to support their children and they know that the power of education is a game changer,” says Harry L. Williams, President and CEO of Thurgood Marshall College Fund. “When your child is admitted to college, it may be the first time you have a clear idea of what it is going to cost.”
They are more likely to attend for-profit colleges.. The for-profit university sector is known for its high default rates – an average of 52% for all students and 67% for black borrowers, according to a 2018 Brookings Institution report by Associate Professor Judith Scott-Clayton. of economy and education. at Teachers College, Columbia University.
They are more likely to enroll in graduate programs. Among college graduates, black students are more likely to enroll in graduate school, according to the Urban Institute. One reason for higher attendance, experts say, is that black graduates have a harder time finding high-paying jobs and turn to graduate school to improve their graduate results. But more education equals more debt, and graduate students can borrow far more in federal loans than college students.
They are more likely to drop out of school. Studies show a high correlation between noncompliance and not finishing a degree. Black students complete college less often than all other racial or ethnic groups, according to the National Research Center of the Student Compensation Center.
They earn less money after graduation. Among those who finish college, those with a black bachelor’s degree are less than five times more successful than those with a white bachelor’s degree. They even fail more often than white students who don’t complete their studies.
“We think we don’t have to worry about graduates, they generally do well, but that story is not the case for black college graduates,” says Scott-Clayton. She says the worst job market results are likely to be the cause.
African Americans earn less than whites with the same level of education, regardless of the level being compared, according to the Institute for Economic Policy. Black college graduates earn an average of $ 25.77 per hour compared to white college graduates, who average $ 31.83 per hour. Lower income makes it more difficult to pay off debt, especially if students have private debt or are unaware of income-based federal loan repayment options.
What Borrowers Can Do to Avoid Default
Changing the way black borrowers pay for college and repay their debts can help curb default, experts say. That’s how.
Get the free money first. Submit a Free Application for Federal Student Aido FAFSA, to access federal Pell grants, scholarships, and work-study. You can also search for other scholarships based on merit and needs, many of which are exclusively for black students.
At Tuskegee University, a historically black school in Alabama, students are advised to maximize federal aid before borrowing. But since it’s a private school, students generally need more than Pell grants to cover the full costs, says Advergus James Jr., executive director of student financial services at the school.
Choose federal over private loans. Private student loans generally have higher interest rates than federal loans and have fewer repayment and forgiveness options.
Choose the right payment plan. There are eight different plans available for federal student loans, including four that are based on your income level. Income-based payment plans lower your monthly payments but extend the term of your loan. You could pay as little as $ 0 if you qualify.
Let your loan servicer help you. If you’re having trouble meeting your monthly payments, don’t be afraid to contact your loan servicer, advises David Evans, a debt counselor at Florida A&M University, a historically African-American university.
“We emphasize communication with loan servicers; it helps ease tensions or concerns about having to make a change, ”says Evans.
The loan servicer can help you switch to an income-based repayment plan or review forbearance options that can pause payments for up to a year on federal loans.
Don’t ignore the problem. A late payment starts a 270-day countdown to default. Once you default, you lose options for forbearance or a new payment plan. But you can restore access to these benefits by working with your servicer to get your loans out of default.