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Advocates fear racial disparities in student loan defaults

Several organizations urge Department of Education to dig into its own data to gauge extent of problem
University Business, November 2016
A student loan that goes into default costs 250 percent more than a loan paid back on schedule. (Gettyimages.com: wildpixel)
A student loan that goes into default costs 250 percent more than a loan paid back on schedule. (Gettyimages.com: wildpixel)

Some advocacy groups see student loan debt as not just a financial problem, but a growing social justice concern, as well.

The Washington Center for Equitable Growth, which studies economic inequality, has released heat maps showing loan defaults concentrated in zip codes representing black and Latino communities.

And in August, 40 civil rights, legal aid and public interest groups sent a letter to the U.S. Department of Education, calling on the agency to analyze its lending data to determine whether minorities are disproportionately impacted by student loan debt.

“Higher education is supposed to be the great leveler of the playing field,” says Persis Yu, a staff attorney with the National Consumer Law Center, one of the leaders of the data campaign. “But it looks like student loan defaults are hurting communities of color more than they are hurting white communities.”

The groups expect the data to provide concrete evidence that will convince the federal government to abandon wage garnishment, tax penalties and other “Draconian” collection practices when borrowers default, Yu says.

“This is not just a regular loan—this is a loan for a social purpose, and it is currently how we’ve decided to fund higher education.”

For instance, Yu points out that a loan that goes into default costs 250 percent more than a loan paid back on schedule (and borrowers who remain on schedule sometimes have outstanding balances forgiven). While many other types of debts reach a statute of limitations beyond which the lender can no longer collect, that’s not the case with student loans.

And, the debt is particularly onerous for students who don’t reach graduation. “A lot of borrowers are going to school to better their lives and for whatever reason, something has gone wrong,” she says. “Does it makes sense to punish them again? I’m not saying to forgive debt, but some collection methods are extremely harsh.”

The Department of Education intends to respond to the letter, Assistant Press Secretary Kelly Leon wrote in an e-mailed statement in September. “We’ve been steadfast in our commitment to combat the rising cost of higher education, ensure all students obtain high-quality credentials, and support all borrowers with a variety of federal loan repayment options,” Leon said.

But not all students with debt are aware of the various payment methods, such as plans that tie monthly payments to a borrower’s salary, says Maggie Thompson, executive director of Generation Progress, a group with a focus on higher ed that aims to get young people involved in civic affairs.

Wider awareness of these tools could prevent more students from going into default. The recent attention given to debt-free public universities and proposals to increase federal and state aid also are encouraging, Thompson says.

“What’s most stunning, and what we want the data to dig into further, is that it’s often middle class communities of color who are suffering the most,” Thompson says. “There’s this stretch middle class families make to send kids to great schools but often those families don’t have assets to fall back on to allow students to graduate debt free.”

Ultimately, the mounting debt is blocking social mobility for lower-income students, says Kavya Vaghul, a Washington Center for Equitable Growth research analyst who helped build the heat maps.

“Young people of color are told to go into debt to move into middle class,” Vaghul says. “But taking on debt to finance college doesn’t have this intended effect, especially for minority communities.”

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