Race and Finance: The Student Loan Trap

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This is the second in a series of articles dealing with race and the financial system

When US civil rights activists took to the streets last century, they dreamed of a day when black Americans would enjoy the same educational opportunities as everyone else in the country. Sabrina Cannon lived this dream – and he owed her deeply.

Cannon, 33, was the first member of her African American family in Buffalo, New York to attend college and receive a marketing degree from Niagara University, a nearby private institution, with $ 100,000 in federal student loans in 2010. However, in the troubled post-financial crisis times, she struggled to find work in her field and only made so much other jobs to make the minimum repayments on her loans, leaving her capital untouched.

So Cannon switched gears. She decided her future was in healthcare – especially mastering the alphanumeric code doctors use to keep track of patients – and she went back to school part-time for a second degree from the State University of New York in 2017 Make Polytechnic Institute. Resuming college allowed her to pause payments on her first student loan while she was still in school, but she also had to take on more debt to get new credentials.

FT Series: Race and Finance

Features of this series include:

Part 1 – The separate banking system

Part 2 – The Student Debt Trap

Part 3 – Fund managers fail to go the way

Now she makes better money as a medical programmer, but has $ 120,000 in student debt – more than a decade and a half ago when she started college. Her credit history is so bad she was recently turned down for a mortgage, and she only took a temporary job as a grocery supplier last year to pay off her college loan.

“I did what we were all told to go to college so you could get a good job and make enough money to change your situation,” said Cannon. “I would have been better off not going to college.”

Cannon is far from alone in their disappointment. For a disproportionate number of black Americans, the pursuit of a college degree has led to a new breed of poverty rather than prosperity – the decades-long hopes that improved access to higher education would narrow the racial wealth gap in the United States.

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The underlying problem is that black university enrollments have increased over the past few decades as the use of debt to fund U.S. higher education has skyrocketed – and costs soared along with all of the money that went into the sector. Student debt, largely provided by the federal government, hit $ 1.75 trillion that year, according to the Federal Reserve, as government budget cuts increased public university costs and private institutions listed annual student fees in some cases cases increased over $ 80,000 a year.

Black students are more likely to borrow to finance their education and then borrow more – many borrowing, as Cannon did, to improve their job prospects after the Great Recession. 30 percent of black households owe student debt, compared with 20 percent of white and 14 percent of Hispanic households, the Fed said in 2019. The middle black borrower owes $ 30,000, compared with $ 23,000 for the middle white borrower.

Paying back this debt becomes a decades-long struggle for many black borrowers. Twenty years into college, the middle black borrower owed 95 percent of their college debt while the comparable white student had repaid 94 percent, according to a 2019 study by the Institute on Assets and Social Policy at Brandeis University. Three-quarters of black borrowers owed more in 2019 for their student loans when they took them out, which reflects the accrued interest, Brookings found.

Some researchers compare the impact of educational debt in the black community to the ravages of subprime mortgages during the financial crisis. In both cases, loan products designed to help borrowers grow their wealth have had the opposite effect by depriving the disadvantaged – a process that social scientists call “predatory inclusion”.

According to a study published in Social Currents earlier this year, the median black student debt household had just 5 cents in wealth for every dollar of wealth in the middle white student debt household in 2019 – greater inequality than the country as a whole . In 2019, the middle white household had $ 188,200 in net worth, nearly eight times more than the middle black household $ 24,100, Brookings found.

“We’re seeing student debt keep getting higher and the reason is that people can’t get away with it – they can’t get to the principal (loan),” said University of Iowa sociologist Louise Seamster, one of the authors of the Social Currents Study. “If you were trying to build a system that had one outcome for one group of people and another outcome for another set of people, I don’t think you can do any better.”

Black Americans, in many cases, fall behind because they started with so little. Like other students from disadvantaged communities, they are more likely to work long hours and leave school without a qualification during their school years. They are also more likely to be recruited from for-profit schools, which have been accused by critics of taking advantage of students with government educational achievements by charging inflated prices and providing lower quality instruction.

Family needs can make it even more difficult for black students. Based on nearly a quarter of a century of data, a 2017 study by the Federal Reserve Bank of St. Louis found that white college graduates were more likely to receive financial aid from their parents to pay for their education or buy a home, while black college graduates were more likely to receive financial aid from their parents more were likely to provide money to their parents.

“It is very difficult for black students to get the same benefits from higher education that white students get from student loans, family wealth and more,” said Julia Barnard of the Center for Responsible Lending, a financial policy group.

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Although most student loans are federally granted, the resulting debt burden can prevent borrowers from obtaining private sector loans to buy cars, houses, or start businesses. For black Americans, catching up on student debt after graduation is made difficult by persistent racial inequalities in the labor market; Government statistics show that black Americans with similar educational qualifications earn less than whites.

“You have to go into debt just to get a degree, and when you graduate you get into jobs that get (less) paid,” said Bernel Hall, CEO of New Jersey Community Capital, a lender that finances Minority entrepreneurs. “You’re in trouble when you leave school. You just don’t know it yet. “

Black borrowers like Sabrina Elliot of Charlotte, North Carolina, are figuring out how long it can take to get rid of their student debt. She says she owed $ 72,000 when she graduated, and after more than two decades of employment, her debt has reached $ 166,000. Her minimum monthly student loan payment has reached $ 1,393.29, more than the average monthly mortgage payment of $ 1,122 in her hometown.

Elliot fell behind when she entered government service after graduating from the University of Virginia and North Carolina Central University Law School. She accepted a position as a solicitor with the City of Charlotte and applied for several deferrals on her student loans because of the low salary.

However, that didn’t stop their interest from multiplying. By the time she moved to private sector employers, including Walmart, and began earning enough salary to make her minimum payments, her credit balance had skyrocketed. While admitting that her education loans were “my responsibility”, she said that all of the accumulated interest “makes it really difficult for someone to get out of their student loan debt.”

“I’m in that group of people over 50 who are still paying student loans,” she said. “So based on my current payment that I’m making, there are no plans to pay off this loan before 2035. By that time I will have reached what many would call the retirement age. Who wants to retire with the student loan? “

What to do with US student loan borrowers is becoming a hot topic in Washington. The student loan relief measures introduced at the beginning of the pandemic, which temporarily suspend interest and payments for borrowers like Cannon and Elliot, will expire on January 31, 2022. Both Congress and the Biden administration are under pressure to provide additional aid.

During the 2020 presidential campaign, President Joe Biden promised to cancel $ 10,000 in student debt for each borrower, but he has not yet done so, and many progressives in his Democratic Party want it to go on. Massachusetts Senator Elizabeth Warren said earlier this year that canceling student debt by $ 50,000 per borrower would be “the most effective executive action available to boost our economy and advance towards closing the racial wealth gap to achieve”.

For her part, Cannon, the Buffalo, New York, Medical Coder, said she earned enough salary to make the minimum payments on her student loan and hoped “to be able to pay it off at some point.” But she said she would advise younger black Americans to think twice before signing up for federal loans to attend a four-year university.

“Well, I’m just a big believer in the next generation who don’t fall for it like us,” she said. “Go to community college or work first and see what you’re good at and where to get in and go from there.”

Additional coverage from Obey Manayiti in New York

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