Although high outstanding student loan debt has been a problem for years, the idea of simply annulling that debt only recently began to garner mainstream support. The government enacted legislation to do so for certain income levels for a certain amount, which is now being blocked by federal courts.
Internet searches for “student loan forgiveness” and “student loan cancellation” started to increase in 2021, and it’s easy to understand why. Americans collectively owe $1.7 trillion in student loan debt, an amount larger than the gross domestic product (GDP) of most countries on Earth.
It’s a huge financial burden that not only continues to grow but it also places substantial pressure on an already economically vulnerable populace. This is especially true for young people and others just getting started with their careers and their families. Those from lower-income backgrounds are particularly affected.
Looking at student loan debt by race, it becomes apparent that while this issue affects almost everyone in the United States to some extent, some groups are having a harder time than others.
- Student loan debt affects more than 42.8 million Americans, and costly repayments can make it difficult to save money for long-term goals, such as buying a house or saving for retirement.
- By looking at the percent changes in median income and student debt since 2009, The Brookings Institution found an ever-widening gap between what people are earning and what they owe for their education, especially for Black students.
- Intergenerational wealth transfers exacerbate the racial wealth gap for all students of color, but especially for Black borrowers. According to the Student Borrower Protection Center, Black students had less household wealth and took on more loans to finance their education in 2020, which limited their opportunities to generate wealth.
- According to Brookings, although there were quantifiable family income and wealth differences between Black borrowers and White borrowers in 2018, these only accounted for roughly half of the gap in default rates between these two groups. Even when you account for differences in degree attainment, college grade-point average, and post-college income and employment, this gap remains.
- Among populations, Black, Hispanic, and Native American borrowers generally had higher unmet financial needs, incurred more student loan debt, and were more likely to struggle financially to stay in school in 2020.
Understanding Student Loan Debt
Student loan debt is the end result of taking out money to pay for an education, including the cost of any tuition not covered by scholarships, textbooks, living expenses, and other associated expenses. The escalating price of higher education has made it extremely difficult to afford without some form of financial assistance.
In the likely event that a student cannot find a sufficiently high-paying job after graduation, they may find it challenging to pay back their loans. Delinquency is the consequence of missing a repayment due date by even one day.
There is a risk of going into default after a certain period of delinquency, depending on the type of loan. Each of these conditions can have a substantial impact on a person’s financial circumstances, particularly when it comes to their credit score and credit report.
At the end of Q3 2022, student loan debt affected 42.8 million Americans, and costly repayments can make it arduous to save money for long-term goals. What’s more, this burden doesn’t affect all Americans equally. Members of some racial or ethnic groups are more likely to have larger student loan debt balances on average.
In August 2022, President Biden announced student loan relief for eligible borrowers (those earning less than $125,000), allowing individuals with a Pell Grant at school to be eligible for debt cancellation up to $20,000 (or up to $10,000 for those that did not receive a Pell Grant); however, federal courts have issued orders blocking the student loan forgiveness plan. Consequently, as of Nov. 11, 2022, the Department of Education is no longer accepting applications for student loan forgiveness.
Factors Affecting Student Loan Debt
These discrepancies can be caused (or at least influenced) by racism. And while student loan differences can be both a symptom of greater socioeconomic inequities and a reinforcement of them, other factors also can influence how much debt a group will collectively owe:
- Total U.S. Population: The size of a population group can skew certain statistics. For instance, if a study finds that one group has a larger number of student loans than other groups, it may simply be because there are more people in that group.
- Differences in Income: It’s obvious but still worth mentioning that those with higher incomes after graduating will have an easier time paying down their debt. The Bureau of Labor Statistics (BLS) releases a quarterly report that shows a wage gap by race does indeed exist.
- Career Distribution: Similarly, if more members of a particular group have careers in high-paying industries—such as science, technology, engineering, and mathematics (STEM) fields—they will be able to repay their student loans more easily. The inverse is also true: Groups with a disproportionately large presence in low-wage positions, such as food service, will likely take longer to fully repay their debt or have more trouble meeting minimum required payments.
- Credit and Lending Issues: It takes good credit to secure a private student loan, especially at a favorable interest rate. Additionally, if more members of particular groups are targets of predatory lending, paying back student loans can be even more difficult.
- Familial Wealth: Affluent families may choose to finance the entirety of their child’s education, leaving them debt-free upon graduation. Conversely, those who are struggling may have to rely on their children for financial support, which puts additional economic strain on anyone already struggling to repay student loans.
- Parental Obligations: Young parents, particularly single ones, must factor child care into their budgets. Depending on their income, they may be unable to afford this expense, basic necessities, and paying down their debt.
- Local Cost of Living: The affordability of basic necessities, such as housing, can vary substantially. Those who study in areas with a higher cost of living will, of course, need to borrow more money to afford their living expenses.
- Type of Institution: The cost of attendance at an institution can vary based on whether it’s public or private, for-profit or nonprofit, and two-year or four-year. These differences show up in tuition, fees, room and board, books, and other academic supplies.
- Type of Loan: There are two basic types of student loans: federal loans funded by the U.S. government and private loans issued by banks and other non-federal lenders. Multiple factors can determine how difficult each one is to repay. For example, private loans tend to have variable interest rates instead of fixed rates like a federal loan and they lack flexible repayment terms or forbearance options.
- Graduation Status: If a student takes out a loan for college but doesn’t graduate, they’re stuck with a significant debt without the economic benefits that come with a degree. Additionally, those seeking a postgraduate education may need to take out additional money on top of the debt accumulated from undergraduate education.
Before we share our findings on how student loan debt differs by race, there’s one more issue to discuss: Much of the available research on the differences in student loan debt by race compares Black and White borrowers only.
There is less information that includes the full range of racial groups within the United States. Certain data sets covering one or more group(s) don’t include others. Or the information on the wider range of groups may originate from a different (and sometimes less recent) source.
Note that the names of certain groups used below may not be entirely consistent throughout the article to match the terminology used by our sources. For example, although Investopedia prefers the identifier “Latino/a/x,” this article uses categories such as “Hispanic” to provide an accurate representation of how the study that we quote reported the information.
Size of Student Loan Debt by Race
According a report from the Board of Governors of the Federal Reserve System (in which (which the report compares Black, White, and Latinx borrows to a large group they call "other"), Black borrowers took out the largest amount of federal student loan money in 2019. This amount averaged $44,880 per borrower. Although “Other” was technically the second highest at $40,400, the Fed includes several groups in this category: Asian, American Indian, Alaska Native, Native Hawaiian, Pacific Islander, other race, and those with more than one racial identity. This limits the categories effectiveness in comparisons.
White borrowers accounted for the second-largest amount for a single group. Finally, Hispanic borrowers took out the smallest amount on average, at $30,890. This information is from the Fed's "Survey of Consumer Finances," which is conducted every three years. The most recent survey is from 2019.
But here are a few surprising points to note:
- When the Fed began recording this data in 1989, Black borrowers had the smallest amount of student loan money. They overtook all other categories (excluding “Other”) after 2010, with one dip in 2013.
- In 2019, the Institute on Assets and Social Policy found that the average Black borrower still owed 95% of their original loan amount after two decades, compared to white borrowers who, on average, have paid off most of their student debt.
The general trends are relatively similar to what the Fed reported when you look at the intersection of race and gender. Here’s what the American Association of University Women found:
- Black women had the largest average student loan debt in 2021, with Black women having the highest overall debt at $41,466.
- The next largest group was the Pacific Islanders/Hawaiian women at $38,747, then American Indian/Alaska Native women at $36,184, then White women at $33,852.
- Hispanic/Latina borrowers were the next highest group at $29,302.
- Asian women borrowers owed the lowest amounts.
Additional discrepancies can be seen in how loans are distributed, depending on both race and where the student studied. This is what the Student Borrower Protection Center reported (also visible in the above chart):
- Black/African American graduates across all types of institutions constituted the highest percentage of borrowers to finance higher education in 2020.
- Asian borrowers had the lowest percentages across all categories, meaning they were the most likely to graduate without any student loan debt.
- White borrowers had the second highest percentage in public two-year universities, the third highest in both public four-year and private nonprofit two-year universities, and the fourth highest in private nonprofit four-year universities.
- Percentages for both Hispanic/Latinx and American Indian/Alaska Native graduates were generally on the higher side, excluding public two-year institutions.
It’s also worth noting that, across all five groups, the percentages of borrowers for private nonprofit two-year universities were both the highest and had the least amount of difference among the groups.
Impact of Race on Student Loan Debt
It’s no secret that student loan debt is a major problem for most borrowers, regardless of their background. Looking at median income and student debt since 2009, the Brookings Institution found an ever-widening gap between what people earn and what they owe for their education. While the difference has diminished over time for Asian borrowers, the gap has grown wider for Black borrowers.
Racial differences in family wealth exacerbate the debt issue for all students of color, but especially for Black borrowers. According to the Student Borrower Protection Center, Black students had less household wealth and took on more loans to finance their education in 2020 than other groups.
Additionally, a 2017 report from the Federal Reserve Bank of St. Louis found that postgraduate White households generally receive financial support from their family, whereas their Black counterparts instead contribute portions of their income to help their family.
These contributions limit the ability to build wealth. As a result, when these borrowers have children of their own who eventually enroll in college, the cycle often begins anew. Carrying larger amounts of student loan debt can also damage the creditworthiness of Black households.
This population also faces financial difficulties as a result of their student loan debt. With educational costs rising and grant amounts shrinking, UnidosUS found that Latinx students and their families frequently chose to pay out of pocket and/or take out student loans to finance their education in 2019.
Despite attending college with lower incomes and less intergenerational wealth than their White counterparts, Latinx borrowers on average paid more to attend college than White borrowers.
The Role of Private Student Loans
Further worsening the student debt crisis for borrowers of color are private student loans. Private loans can be useful to augment federal loans, which may not let students borrow enough to fund the cost of their school.
However, private loans lack many of the safeguards that federal student loans offer, which can protect a student from going into default due to economic hardship. As a result, private borrowers have fewer options should they fall behind on their payments.
What’s more, most federal loans don’t require a credit check and have a set interest rate. Private loans generally do—and interest rates are based on the credit ratings of the borrowers and may require a co-signer. The racial wealth gap can result in student loans costing more, as borrowers with lower credit scores may be charged higher interest rates.
According to the Student Borrower Protection Center, students of color (specifically Black and Latinx students) and low-income borrowers overall used private loans less often than all White borrowers but were more likely to have trouble paying down their private-loan debt. Black students, in particular, were four times as likely to have trouble repaying private debt compared to White students, even though the latter are twice as likely to use this form of lending.
Two possible contributing factors:
- Private loans require a credit check. Interest rates are based on the credit ratings of the borrowers and may require a co-signer. (Most federal loans have no credit check and the same interest rate for all borrowers.) The racial wealth gap can result in student loans costing more, as borrowers with lower credit scores may be charged higher interest rates.
- In addition, private student loans are more often taken out by students attending for-profit institutions. A number of these institutions, including Corinthian Colleges and ITT Technical Institute, have been accused of fraud related to student loans. Many of these loans take the form of shadow debt, a largely unregulated market that often features high interest rates, misleading marketing, and risky underwriting. Since Black borrowers are overrepresented in for-profit institutions, they are also the most likely to fall victim to this form of predatory debt.
Differences in Repayment
Perhaps the greatest impact of discrepancies in student lending is how they affect each group’s ability to repay their debt. In 2019, the Center for American Progress broke down the differences in student loan default rates by race and institution type from two years prior.
Loan default rates were lowest for borrowers who attended public four-year universities, followed by private nonprofit four-year, public two-year, and private for-profit institutions. White students had the lowest default rates across all categories.
Hispanic or Latinx borrowers had figures similar to their White counterparts, with the largest difference between the two groups being 7% for “All Institutions.” Black students had the highest default rates, with the largest being 42% for private for-profits.
As discussed previously, being unable to repay loans will cause graduates to lapse into delinquency and, eventually, default. The potentially devastating financial consequences disproportionately fall on Black communities, and difficulties in paying down debt cannot be attributed to income inequality alone.
According to Brookings, although there were quantifiable family income and wealth differences between Black borrowers and White borrowers in 2018, these accounted for roughly half of the default rate gap between these two groups. Even further controlling for differences in degree attainment, college grade point average, and post-college income and employment, this gap remains.
The author posited that differences in loan counseling or servicing may have been the cause of the remaining gap. In 2022, the Consumer Financial Protection Bureau (CFPB) found approximately 8,407 complaints from borrowers regarding both federal and private loans between September 2021 and August 2022, with the most common issues pertaining to dealing with a lender/servicer, struggling to repay loans, and problems with a credit report or score.
The CFPB also reported that predatory schools have targeted students of color, which results in lower future earnings, high debt balances, and high default rates.
Ultimately, differences in repayment rates are likely the result of all of the factors discussed throughout this piece, including the greater percentage of Black borrowers who also financially support their families and the greater proportion of White borrowers whose families help support them.
Although there’s no doubt that student debt disproportionately affects borrowers of color, it’s difficult to determine the full scope of its effects. As mentioned previously, because much existing research focuses on Black and White borrowers, there is less information about how other racial and ethnic groups are affected.
For instance, while the Lumina Foundation was able to determine that Black, Hispanic, and Native American borrowers generally had higher unmet financial needs, incurred more student loan debt, and were more likely to struggle financially to stay in school in 2020, it didn’t specify whether this was also the case for Asian borrowers and Native Hawaiian/Pacific Islander borrowers.
A 2016 report from Buzzfeed News found that most of America's tribal colleges had stopped accepting student loan money altogether because of high rates of default among Native American borrowers. Tribal colleges instead offer scholarships and waivers to keep their students from defaulting on loans, which could jeopardize the college's access to federal aid.
In fact, Asian Americans are often excluded from these data sets as a separate race altogether, as is evident in the Fed’s findings on average student debt amounts and the Center for American Progress’ research on default rates by race.
At least with the former, the Fed defined the “Other” category in supplemental materials to 2019 report to include Asian borrowers, but it’s unclear whether that’s also true for the latter’s “All borrowers” grouping, as that could be just the three groups included in the chart.
Which Race/Ethnicity Has the Highest Student Loan Debt?
Black adults have the highest student loan debt. For the majority of indicators, black adults held the highest spot, including student loan borrowing rates, default rates, and average debt. These numbers highlight the racial wealth gap in college and after.
Why Is American Student Debt So High?
There are a few factors why American student debt is so high. These include the rising cost of tuition, the growing availability of federal loans, and wage stagnation. Between 1980 and 2019, college costs grew by 169%. For the same period, wages for adults between the ages of 22 and 27 increased by 19%.
Which Race Has the Most College Graduates?
White or Caucasians have the highest college graduation rate, making up over 62% of all bachelor degree graduates, while the next highest graduating group makes up only 15%. The figures are similar for other degree earners.
The Bottom Line
Given the hefty financial burden that education debt places on most Americans, the government has agreed to some student loan cancellation.
The question of whether to forgive student debt isn’t simple, and doing so won’t be a silver-bullet solution to all of the institutional discrimination endemic to higher education; however, the assumption that hard work and a college degree are all that’s needed to be financially successful ignores the reality that some students will unfairly face a greater burden than others.