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Student Debt May Be Contributing to Racial Inequality

Black college grads owe more on their student loans while being paid less than their white counterparts.

The pursuit of higher education may be exacerbating gaps in financial well-being between blacks and whites, rather than narrowing them.

Black Americans who recently graduated college owe close to twice as much on their student loans as whites, a racial gap that has climbed nearly 14-fold over the past 15 years.

Blacks who graduated with bachelor's degrees in 2008 owed $52,726, on average, on their student debt four years later, compared with $28,006 among whites, according to a new study made public Thursday by a pair of Columbia University researchers. Black graduates, on average, were more likely to fall behind on their education loans.

"Students of color," Judith Scott-Clayton and Jing Li said in their study, "disproportionately bear the burden of student debt."

The new findings add to a growing body of evidence that that higher education might not be the great equalizer. "There is this popular notion that student debt is good," said Mark Huelsman, senior policy analyst at public policy organization Demos. "But it's actually fostering inequality rather than mitigating it."

The federal Consumer Financial Protection Bureau is investigating the issue, with a focus on how debt collectors and loan servicers are treating black borrowers, who default at much higher rates than their white counterparts. Officials also worry that too much student debt among black Americans could be preventing economic mobility.

For example, black graduates' cumulative student loan balances increased 6 percent in the four years after they left school, while whites owed 10 percent less, according to the study by Columbia researchers. 

Data from the Federal Reserve show that black households led by college graduates have much less wealth than white households headed by college grads. Black Americans are also paid less than their white counterparts, regardless of their educational attainment, federal data show, and they're more likely to borrow money—and more of it—to pay for college.

More borrowing during their undergraduate years and an inability to pay down the resulting debt were responsible for about 55 percent of the increase between blacks and whites among 1993 and 2008 graduates, according to the Columbia researchers' paper. Subsequent enrollment in graduate school, much of it at for-profit colleges, caused the remaining debt divide.

Increased enrollment in graduate school is typically a sign of progress, since advanced degrees normally lead to higher salaries later. But the researchers reckon that black Americans with graduate degrees make less money, on average, than whites who only have a bachelor's degree. As a result, the increase in debt from for-profit graduate schools may not be paying off for large numbers of black Americans.

Scott-Clayton cautioned that for many black Americans, advanced degrees are worth the cost. Black Americans who graduate with an advanced degree experience a bigger pay bump relative to black bachelor's-degree holders than their white peers, she said. She added, however, that graduate school is far risker for black Americans than it is for whites because the black students end up with more debt and are either less likely to graduate or take longer to earn their credential. "It's shocking," Scott-Clayton said.

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