News: Data, Research & Evaluation

Understanding Differences in Borrowing by Race: How Data Can Inform Practice

Monday, April 6, 2020  
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By guest bloggers Sandy Baum, Nonresident Senior Fellow, and Kelia Washington, Research Analyst, The Urban Institute

The U.S. education system has been upended by the rapid spread of COVID-19, which has forced students, teachers, and administrators to turn to virtual schooling. These disruptions come at a crucial time, when many high school seniors are making decisions about college and other pathways. Without the convenience of being in the same building as their counselors, students might be having an even more difficult time than usual navigating their postsecondary options. Questions about financing their college education will be particularly challenging with the economy essentially shut down and many families facing financial instability.

As counselors find innovative ways to reach out to their students, understanding more about how different students make choices around borrowing for college can help advisers better guide students.

The reality is that many students have to take loans to pay for a college education. Each year, more than half of all full-time students borrow; half of students completing associate degrees and about 70% of those earning bachelor’s degrees graduate with debt. However, borrowing patterns differ across racial and ethnic groups. Some students borrow heavily, sometimes leading to difficulty repaying loans. Some students borrow too little and end up working more hours to make up the difference or leaving school to save money, reducing their chances of completing their programs.

On average, Black students leave school with higher amounts of debt even when pursuing similar credentials to their peers. For example, 24% of Black students who earned bachelor’s degrees from public four-year colleges and universities in 2015-16 graduated with $40,000 or more in debt, compared with 13% of White graduates, 7% of Hispanic graduates, and 3% of Asian graduates.

Source:  Urban Institute (2020), Borrowing for College: Helping High School Students Make Good Decisions, Data from 2016 National Postsecondary Student Aid Study.

There are several factors that could be contributing to differences in borrowing patterns. Many of these differences across racial and ethnic groups are likely to be exacerbated by the current crisis, leading Black students and others from vulnerable groups to rely even more on loans to pay for college.

  • Black students starting college just after high school tend to come from lower-income families than those from other groups. In 2015-16, almost half of Black students came from families with incomes below $28,000. This was the case for almost 40% of Hispanic students but for only 14% of White students.
  • In 2016, the typical White family had about 10 times the wealth of the typical Black family and about 7.5 times the wealth of the typical Hispanic family. Even within income groups, Black and Hispanic families have much less wealth than White families.
  • Black college graduates are more likely than others to have attended for-profit institutions, where low- and moderate-income students pay more than in any other type of institution, including private nonprofit colleges and universities.
  • A larger share of Hispanic students than of those from other racial or ethnic groups live with their parents. This is in part because many of them are enrolled in associate degree programs as opposed to bachelor’s degree programs. But even among bachelor’s degree students, the share of Hispanic students living at home is about twice the share of Black and White students living at home.
  • Black and Hispanic students tend to spend a longer time in school earning their degrees than others. There is a high correlation between debt levels and time to degree.

Black students are also more likely than others to have difficulty repaying their loans. Their average post-college incomes are lower than those of other groups. Moreover, leaving school without a college credential is the biggest factor predicting default on student loans, and Black students finish their programs at lower rates than those from other groups.

Advising Students

In helping students navigate their postsecondary options, it is always important to keep these things in mind. In this very difficult COVID-19 crisis, all of the problems students face will be more challenging, but investing in education is more important than ever.

  • Encourage students to compare the net price after grant aid, graduation rates, and potential earnings of colleges with similar programs. Colleges have net price calculators on their websites and the College Scorecard has information about all colleges here.
  • Help students think through their choices about living arrangements, considering the relative costs of different options.
  • Take time to explain the federal loan process, including loan caps, interest rates, and repayment plans — particularly income-based plans that limit required payments to an affordable share of income. Sometimes students who are more loan averse just need more information about flexible and affordable repayment plans. The Education Department Student Aid website has a detailed explanation of loans and repayments here.
  • Discourage students from taking out private loans, as federal loans offer lower interest rates and flexible repayment plans.
  • Be sure students understand their responsibility for repaying the money they borrow and think about their potential earnings in the careers they plan to pursue. College Scorecard allows students to compare average salaries across colleges here.

We have created several resources, including accessible factsheets and more detailed technical appendices, that provide more information about how borrowing patterns differ across racial groups. You can access them here.

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