For Many Blacks, College Degrees Come With Outsized Debt

Loans, Student Loans
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Sonia Williams was floored when she realized what it would cost for her daughter, Jenele, to attend college.

“We heard stories, but when you go through it, that’s when you really say, ‘Wow,’” says Williams, who moved to the United States in the 1980s from the Caribbean island of Antigua.

Jenele Williams will be the first in her family to graduate from college in the U.S. But along with the second diploma she’s on track to earn this spring as she finishes a joint bachelor’s and master’s program in business administration, she’ll have tens of thousands of dollars in student debt. She and her mother, who took out parent loans, owe a combined total of about $93,000.

The Williamses are one family in a community that bears a disproportionate and growing share of the student debt burden: black Americans.

Ninety percent of black students have had to take out student loans during their undergraduate years, compared with 68% of students overall, according to National Center for Education Statistics’ 2011-2012 data, the most recent available. The average cumulative loan amount among black students ages 18-24 in their fourth year of college or higher grew 157% in about two decades, from $12,100 in 1989-90, to $31,100 in 2011-12, according to a NerdWallet analysis of the data. That was more than double the rate for students of all races.

Experts cite a host of reasons for this trend, including:

  • The racial wealth gap.
  • Smaller endowments at historically black colleges and universities (HBCUs) compared with other schools.
  • The tendency for black students to disproportionately attend for-profit colleges, which cost more than public schools on average and often are associated with poorer outcomes.

The racial wealth gap

There’s a racial wealth gap, and it has widened since the Great Recession, says Sara Goldrick-Rab, professor of higher education policy and sociology at Temple University in Philadelphia. “Black wealth was decimated by the recent recession in a way that white wealth was not,” Goldrick-Rab says.

In 2004, black families in the U.S. had a median net worth of $25,186 while white families had a median net worth of $168,509, nearly seven times higher, according to a 2015 Federal Reserve Board paper. By 2013, the wealth gap had grown: Black families had a median net worth of $11,068, while white families had a median net worth of $134,118 — 12 times higher.

Net worth, or wealth, considers a family’s total assets — including a home, savings and investments — in relation to debts, including mortgages, credit card debt and student debt. When black families have fewer assets compared with debts, more students take out loans to pay for their education, says Sandy Baum, a senior fellow who studies college access and financing at the Urban Institute, a Washington, D.C.-based economic and social policy research group.

“They don’t have anywhere else to get the money,” Baum says.

Smaller endowments at HBCUs

Students at HBCUs borrow student loans at higher rates than students at other colleges and universities, according to a UNCF report published in December 2016. The report cites the wealth gap and rising college costs as reasons. It also points out that HBCUs have smaller endowments than other schools, which means they can’t offer financial aid packages as generous as those at other institutions.

The top 10 HBCU endowments in 2015 ranged from Virginia State University’s $33.90 million to Howard University’s $659.63 million, according to the UNCF report and a 2015 study by the National Association of College and University Business Officers and Commonfund Institute. The top 10 non-HBCU endowments range from the University of Michigan’s $9.95 billion to Harvard University’s $36.45 billion.

Black students and for-profit colleges

Black students are overrepresented in four-year, two-year and less-than-two-year programs at for-profit colleges, according to a 2014 report by the Center for Responsible Lending. Students at for-profit programs, no matter the duration, tend to pay more than or about as much as students at public and private nonprofit schools — and take on more debt for it, according to the report.

For-profits have “positioned themselves as a means for traditionally underserved students of color to achieve educational success,” the report adds.

Researchers from the American Sociological Association turned to inner-city Baltimore in 2016 to study why African-American youth attend short-term programs at for-profit trade schools. Among other things, they found that students were drawn to programs that advertised a fast and direct path to the workforce.

But that path isn’t always direct or even existent: For-profit schools tend to have lower graduation rates, higher student-loan default rates and poorer employment outcomes than public and private nonprofit schools, according to the 2014 Center for Responsible Lending report.

How to avoid student loans and manage existing debt

Sonia Williams has already begun paying back her student loan, even though her daughter hasn’t yet graduated from Hampton University in Virginia, an HBCU. In doing so, she is minimizing the interest that’s piling up.

Other ways to manage student debt or reduce your dependence on loans in the first place include the following:

Tips for avoiding student debt
Tips for handling existing student debt
  • Apply for scholarships from organizations such as the UNCF.

  • Save for college in a tax-advantaged account, like a 529 plan.

  • Research college costs and career outcomes before choosing a school.

  • Submit the Free Application for Federal Student Aid every year to apply for federal grants and work-study and, if needed, federal loans.

Each of the options for managing your existing student loans — income-driven repayment, forgiveness and refinancing — has risks too, so do your research first.

Also, remember that you don’t have to pay for student loan help, even if you see so-called student debt relief companies advertising forgiveness or consolidation for a cost.

For more tips, check out NerdWallet’s resources for building financial health in the black community.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.

Updated Feb. 8, 2017.