Race and finance: the student loan trap
This is the second in a series of articles on race and the financial system.
When American civil rights activists of the last century took to the streets, they dreamed of a day when black Americans had the same educational opportunities as everyone else in the country. Sabrina Cannon lived that dream – and it put her in heavy debt.
Cannon, 33, was the first African-American family member in Buffalo, New York, to attend college, using $ 100,000 in federal student loans to earn a marketing degree in 2010 from Niagara University , a neighboring private institution.
But she struggled to find work in her field during the difficult times following the financial crisis and only won enough other jobs to make minimum payments on her loans, leaving the capital intact.
So Cannon shifted gears. She decided her future was in healthcare – in particular, mastering the alphanumeric code that doctors use to track patients – and returned to school part-time to earn a second degree in 2017 from the State University of New York Polytechnic Institute. Resuming her studies allowed her to withhold payments on her first student loan while in school, but it also forced her to take on more debt to get new degrees.
FT series: racing and finance
Part 1 – The segregated banking system
Part 2 – The student debt trap
Part 3 – Fund managers fail to walk
Today, Cannon makes more money as a medical coder, but has student debt of $ 120,000, more than when she started college a decade and a half ago. Her credit history is so bad that she was recently turned down for a mortgage and only last year accepted a second temporary job as a grocery delivery driver to help pay off her mortgage. university loans.
“I did what we were all told we were supposed to do, go to college so you can get a good job and earn enough money to change your situation,” she said. . “I would have done better not to go to college. “
Cannon is far from alone in her disappointment. For a disproportionate number of black Americans, the pursuit of a college degree has led to a new kind of poverty rather than prosperity – dashing decades of hope that increased access to higher education would narrow the wealth gap racialism in the United States.
The underlying problem is that black college enrollment has grown over the past few decades, just as the use of debt to fund U.S. higher education has exploded – and costs have skyrocketed along with everything. money poured into the sector.
Student debt, largely funded by the federal government, reached $ 1.75 billion this year, according to the Federal Reserve, while state budget cuts have resulted in increased costs at public universities and private institutions have raised annual fees for undergraduates to over $ 80,000 a year in some cases.
Black students are more likely to take out loans to finance their education and to borrow more when they do – and many are taking on debt, as Cannon did, to improve their employment prospects after the Great Recession. Thirty percent of black households have student debt, compared to 20 percent of whites and 14 percent of Hispanic households, the Fed said in 2019. The median black borrower owes $ 30,000, compared to the borrower’s $ 23,000. median white.
Paying off those debts turns into a decades-long struggle for many black borrowers. Twenty years after starting college, the median black borrower owed 95% of his student debt, while the comparable white student had repaid 94%, according to a 2019 study. to study by the Institute on Assets and Social Policy at Brandeis University. Three-quarters of black borrowers owed more on their student loans in 2019 than when they took them, reflecting the accumulation of interest, Brooking find.
Some researchers compare the impact of school debt in the black community to the ravages of subprime mortgages during the financial crisis. In both cases, credit products meant to help borrowers increase their wealth have had the opposite effect, draining the resources of the underprivileged – a process sociologists call “predatory inclusion.”
According to a to study published this year in the journal Social Currents, the median American black household with student debt held only 5 cents of wealth in 2019 for every dollar of wealth in the median white household with student debt – a greater disparity than exists. across the country. In 2019, the median white household had $ 188,200 in wealth, almost eight times more than the median black household’s $ 24,100, Brooking find.
“We are seeing student debt go up and up and the reason is that people can’t get out of it – they can’t access the principal (of the loan),” said sociologist Louise Seamster of the University of London. ‘Iowa, one of the authors of the social currents study. “If you were to try to set up a system that produced one result for one group of people and another result for another group of people, I don’t think you could do better than that. “
Black Americans fall behind in many cases because they started with so little in the first place. Like other students from disadvantaged communities, they are more likely to work long hours at outside jobs while studying and leaving school without diploma. They are also more likely to be recruited by for-profit schools that have been accused by critics of preying on students receiving federal educational benefits by charging excessive prices and providing inferior education.
Family needs can make things even more difficult for black college students. Based on nearly a quarter of a century of data, the Federal Reserve Bank of St. Louis found in a 2017 study that white college graduates were more likely to receive financial assistance from their parents to pay for their education or buy a house, while black college graduates were more likely to provide money to their parents.
“It’s very difficult for black students to get the same higher education benefits as white students, because of student loans, family wealth and more,” said Julia Barnard of the Center for Responsible Lending, a financial policy group.
Although most student loans are made by the federal government, the resulting debt can prevent borrowers from obtaining private sector credit to buy a car or house or start a business. For black Americans, catching up on student debt after graduation is complicated by persisting racial inequalities in the labor market; government statistics show that black Americans earn less than whites with similar degrees.
“You have to go into debt to get the degree, and when you graduate you end up in jobs that pay (less),” said Bernel Hall, managing director of New Jersey Community Capital, a lender that funds minority entrepreneurs. “You are in trouble the moment you leave school. You just don’t know it yet.
Black borrowers like Sabrina Elliot of Charlotte, NC are finding out how long it can take to get off student debt. She said she owed $ 72,000 upon graduation and that after more than two decades of employment her debt reached $ 166,000. Her minimum monthly student loan payment reached $ 1,393.29, more than the median monthly mortgage payment of $ 1,122 in his hometown.
Elliot fell behind when she entered public service after graduating from the University of Virginia and Central University of North Carolina Law School. She accepted a position as a lawyer for the city of Charlotte and, because the salary was low, requested several deferrals of her student loans.
However, that did not stop his interest from growing stronger. By the time she joined private sector employers, including Walmart, and started earning enough wages to make her minimum payments, her loan balance had swelled. While acknowledging that her student loans are “my responsibility”, she said that all of this accumulated interest “makes it very difficult for someone to get out of their student loan debt.”
“I’m part of that 50+ age group that is still paying off student loans,” she said. “So based on my current payment that I’m making, I shouldn’t have paid off this loan until 2035. By then, I will have reached what many would consider retirement age. Who wants to enter retirement age with student loans? “
The question of what to do with American student borrowers is about to become a hot topic in Washington. The student loan relief measures introduced at the start of the pandemic, which temporarily suspended interest and payments for borrowers such as Cannon and Elliot, expire on January 31, 2022. Congress and the Biden administration are under pressure to provide additional help.
During the 2020 presidential campaign, President Joe Biden pledged to write off $ 10,000 in student debt for every borrower, but he has yet to do so and many progressives in his Democratic Party want him to. go further. Elizabeth Warren, Senator from Massachusetts, said this year that the cancellation of $ 50,000 in student debt per borrower would be “the most effective executive measure available to jump-start our economy and move towards closing the wealth gap.” racial ”.
For her part, Cannon said she was earning enough wages to make the minimum payments on her student loan and hopes “to be able to pay it back eventually.” But she said she would advise young black Americans to think twice before taking out federal loans to attend four-year college.
“Now I’m just a big advocate so that the next generation doesn’t fall into the trap like we did,” she said. “Go to community college or work first, and see what you’re good at and where you can get in, and go from there. “
Additional reporting by Obey Manayiti in New York