The Crisis in African-American Student Indebtedness

The student loan default crisis is bad… and getting worse, finds Judith Scott-Clayton, a Brookings Institution scholar, based on her analysis of the latest student loan data released by the U.S. Department of Education.

Debt and default has reached “crisis” levels among African-Americans, and even a bachelor’s degree is no guarantee of security. Black B.A. graduates default at five times the rate of white B.A. graduates (21 versus 4 percent). Black graduates are even more likely to default than white dropouts.

Trends are most alarming among for-profit colleges, says the report, “The looming student loan crisis is worse than we thought.” The results, Scott-Clayton argues, justify robust efforts to regulate the for-profit sector, improve degree attainment, and promote income-contingent loan repayment options.

Remarkably, the conclusion that I find most obvious eludes Scott-Clayton: Student loans are handed out so indiscriminately, in such disregard to a student’s academic potential or prospects of repayment, that a program designed to promote social mobility for the poor and minorities has exploded like a Loonie Toons cigar. Student loans have become a instrument of immiseration for the very people they were designed to assist.

While the author’s public policy musings are debatable, her presentation of the data is useful. Rather than looking at the entire body of student borrowers, she tracks the fate of different student “entry cohorts” — those who entered postsecondary school in 1996 and and 2004 — and tracked them 12 years and 20 years after entry.

In this chart, we can see what happened to people who entered college in 2004 twelve years later. Despite significant financial assistance for lower-income students available at every four-year college and university, African-Americans racked up more than $21,000 in undergraduate debt on average. Total amount borrowed, which includes graduate school debt, was nearly $56,000. In contrast to other racial/ethnic groups, which managed to pay down some of the debt twelve years after entering college, African-Americans saw average debt loads increase — to $64,000. More than one in five blacks were in default, compared to one in twenty-five whites.

It fascinates me how social scientists such as Scott-Clayton obsess over the black-white differential. As the data clearly shows, Asians have the lowest default rate of any racial/ethnic group. Why aren’t Asians the standard for comparison? Why isn’t the disparity described as an Asian-black disparity and an Asian-white disparity? Because, I suspect, emphasizing the gap between whites and blacks reinforces the “white privilege” narrative, while framing the gap as between Asians and other groups would undermine the narrative. “Asian privilege” just doesn’t have the same ring to it.

One thing seems undeniable, though: There is a student loan crisis among African-Americans. Scott-Clayton does her best to explain this crisis as the fault of for-profit institutions, which, in a narrow sense it is. But her analysis ignores a couple of things. First, there is considerable variability between for-profit institutions. Some are fly-by-night, others do a pretty good job of graduating their students and placing them in jobs. Second, there is considerable variability among non-profit colleges. Historically black colleges and universities have student loan profiles comparable to that of many for-profits.

The real problem runs much deeper. There is a widespread belief in America that everyone has a right to attend college and that the federal government should help make that education accessible by means of student loans. Moreover, there is an assumption that student lending programs should not “discriminate” against students on the basis of academic preparation, family financial resources, or other factors predicting the applicant’s likelihood of graduating and repaying their loans the grounds that blacks and minorities would be negatively impacted.

As these beliefs and assumptions play out in the real world, millions of African-Americans are winding up in financial peonage. As blacks accumulate loans that cannot be discharged, they ruin their credit scores, impair their net worth, ramp up their debt-to-asset ratios, and, as we have seen in a recent post (“Racism, Racism, Everywhere You Look,”), find that their home mortgage loans are rejected at a higher rate than whites.

But some people are incapable of peering past the paradigm of omnipresent racism. So scholars like Scott-Clayton try to frame the issue as for-profit colleges, and investigative reporters compile data purporting to show discrimination in mortgage lending without accounting for credit scores and debt-to-asset ratios. Thus, apologists for the status quo perpetuate policies that entrap African-Americans in poverty.

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14 responses to “The Crisis in African-American Student Indebtedness

  1. Yes, it is quite remarkable how people like Judith Scott-Clayton, a Brookings Institution scholar, twists and distorts her analysis of the latest student loan data released by the U.S. Department of Education, to falsely justify her own ideology and prejudices, and thus avoid much of the real problem.

    See for example my Nov. 20 2012 post “Inquisitor, Investigate Thyself” posted on Bacon’s rebellion regarding the collateral subject of thoroughly corrupt college and university accrediting agencies:

    ” … under the Southern Commission’s purview … accreditation issues are rampant among many of the Commission’s member institutions, particularly the extent of student loans and grants. College costs and student debt are soaring. Nationally, total student debt exceeds credit card debt, surpassing $1 trillion and increasing at the rate of $100 billion annually.

    These cost are rising even among students graduating on time. But most don’t. Many colleges accredited by the Southern Commission graduate fewer than 25% of those who enroll. Many take six years to earn a four-year degree, dramatically increasing their cost and debt — and they’re the lucky ones. At least they get a degree. Others simply get a bill. Dropout rates are scandalous. Many students pay for years before dropping out. Of those who do manage to graduate, some discover that they have earned worthless degrees. Forty-five percent of students learn “nothing” their first two years at college, and 36% have still learned nothing after four years, according to Professors Richard Arum and Josipa Roksa who tested 2,300 students from the Class of 2009 that attended 24 accredited colleges. (See “Academically Adrift: Limited Learning on College Campuses.”)

    Instead of turning its inquisitorial gaze upon UVa, the Southern Commission would do well to examine some of its 800 member institutions with demonstrable problems. Take Texas. Seventy-nine of every 100 public college students in Texas start in junior college. Only two of those 79 earn a 2-year degree on time; only seven graduate in four years. Only 5 of 21 students who begin at a four-year Texas college graduate on time, and only 13 of those 21 earn a degree after studying for eight years. Far too often, college students throughout the other ten southern states accredited by the agencyconfront similar fates. Four-year graduation rates include:

    Florida – 35.6%
    Georgia – 24.3%
    Kentucky – 20%
    Louisiana – 15.8%;
    Mississippi – 22.4%
    North Carolina – 36.5%
    Tennessee – 31.9%
    Virginia – 45%
    West Virginia – 22.2%

    The reasons are many for such drop out rates. Students often are not prepared for college work but are admitted anyway. Many get lost in higher education’s “Bermuda Triangle,” taking so many remedial courses they never get to take a college course for credit. But they get the bill, and oftentimes too so does Uncle Sam.

    Who is supervising this awful state of affairs? The leaders of the Southern Commission include:

    The president of Delta State University, which graduated only 19.9% of its four-year students within four years. Fewer than half (46.6%) matriculate within six years. Its president is chairman of the Commission.
    The president of Huston-Tillotson University, which graduated some 11.5% four-year students in 4 years, while another 12.7% earned a degree after six years.
    Along with the chairman and vice chairman, the presidents of 11 other colleges sit on the Commission’s powerful Executive Council. A sampling of their four-year graduation rates ranges from 13.1% to 22%.

    What are these leaders doing, and why? Who knows? Over its 60-year history of accrediting colleges to qualify for Federal student aid, the Southern Commission, as best we can tell, has never revoked an accreditation unless the member was on the verge of bankruptcy anyway. Nor has it established, published, or enforced clear fact-based performance standards that work to insure that our students in need receive the education they pay for. Why? And why instead is the Commission investigating the University of Virginia?”

    For more see Bacon’s rebellion posted on Nov. 20, 2012 at Inquisitor, Investigate Thyself

  2. These are pretty horrible numbers but my take on the why and what to do about it is different.

    Folks who come from generations of families that have not been financially well off tend to be not very sophisticated about financial transactions and debt. You can see this with things like pay-day loans and car loans…and credit card purchases.

    The military is having the same problem with for-profit schools for enlisted folks leaving the service and in that case – it’s more than debt to the individual..it’s the loss of valuable VA benefits and no marketable skills even after “school”.

    The question is what is the remedy that is fair without denying opportunity merely on the basis that they are financially illiterate?

    Do we set up some kind of questionable “screening” system to deny people a loan on the premise that they are likely to “fail” and be in debt?

    The debt “problem” is out of hand in general in my view and the non-profit, public universities are also engaging in predatory practices in my view.

    You have to wonder how some of these “colleges” accept folks who need remedial academics before they can even begin Freshmen year … and they are taking on loans to boot.

    Something does have to be done – but I’m opposed to any remedy that is or borders on some kind of discrimination based on some idea that some folks are “not likely to succeed”…

    Some folks might need to be re-channeled into community college first – to get their academic legs under themselves and to minimize the accumulation of debt but let’s use criteria that will not unfairly deprive people of opportunity –

  3. >>Folks who come from generations of families that have not been financially well off tend to be not very sophisticated about financial transactions and debt. >>

    What is the empirical support for this statement?

    >>Do we set up some kind of questionable “screening” system to deny people a loan on the premise that they are likely to “fail” and be in debt? >>

    The straw man. Did someone suggest this in the article Larry is responding to?

    >>Something does have to be done>>

    Ah, yes. The politician’s syllogism: Something must be done. THIS is something. Therefore, THIS must be done.

    C’mon, Larr. What is THIS? What’s the “criteria” you are suggesting.

    • >>Folks who come from generations of families that have not been financially well off tend to be not very sophisticated about financial transactions and debt. >>

      What is the empirical support for this statement?”

      I could probably dig some up… my point is similar to what Bacon has asserted – that folks who comes from the lower economic tiers, generally, are less sophisticated about finances and more likely to make not good financial decisions – like taking on debt that they cannot easily repay. Payday Loan companies pretty much specialize in this kind of client.

      “>>Do we set up some kind of questionable “screening” system to deny people a loan on the premise that they are likely to “fail” and be in debt? >>

      The straw man. Did someone suggest this in the article Larry is responding to?”

      yes – over several blogs – Bacon has questioned whether these folks are really making good use of “loans”.. he doesn’t ever come right out and advocate.. but he asks questions that lead in that direction -in my opinion.

      “>>Something does have to be done>>

      Ah, yes. The politician’s syllogism: Something must be done. THIS is something. Therefore, THIS must be done.

      C’mon, Larr. What is THIS? What’s the “criteria” you are suggesting.”

      We need to reform the education loan system… BUT it needs to be done in a way that it does not discriminate against people of less economic means. I advocate something similar to what they are trying to do with VA benefits..

      https://www.benefits.va.gov/gibill/dea.asp

  4. >>Do we set up some kind of questionable “screening” system to deny people a loan on the premise that they are likely to “fail” and be in debt? >>

    The straw man. Did someone suggest this in the article Larry is responding to?

    >>Something does have to be done>>

    Ah, yes. The politician’s syllogism: Something must be done. THIS is something. Therefore, THIS must be done.

    C’mon, Larr. What is THIS? What’s the “criteria” you are suggesting.

  5. So you say, “The debt “problem” is out of hand in general in my view and the non-profit, public universities are also engaging in predatory practices in my view.”

    In order to convince people who are too poor to pay cash for something to take out a huge loan “on spec,” let alone a predatory loan, th0se people first must really, really, want whatever it is.

    Our public secondary educational system has become fine-tuned to the task of instilling a burning desire to keep going for that primary education. “Primary” — its very name implies the most important tier — is the end point; “secondary” is the way station. But as a practical matter, in sharp contrast to secondary education, which is entirely “free” to the child’s household (and even accompanied by child care and nutritional programs), the primary tier is not only NOT free, but expensive as hell. The poor child who’s seen (or whose parents have seen) his/her education as the “way out” through high school must now either take out a loan to keep up with the peers, or, “fall off a cliff” into the reality of entering the job market with a high school diploma.

    If we are going to do something about college student debt, we need to address not only the high costs of college but also the high value we place on attending it “no matter what it costs” combined with the absence of significant taxpayer assistance other than loans.

    Either we offer the high school graduate some version of the “free” secondary model going forward — such as a tuition-free community college — or we must stop promoting college as the essential next step and start providing the job skills employers want by the end of high school (or in specific job-training follow-up). Or both.

    • Very well said, Acbar. And what we are selling these kids right now are largely myths, lies, and false educations posing as good educations. Many of these kids paying for college today have nothing more that what we used to call an 8th grade middle school education AT BEST, all as documented earlier on BR.

  6. I agree. Our society has deemed a 4yr college education as the essential means to a “normal” middle class life and our govt has essentially said they will loan you whatever you need to achieve it.

    It’s not just “poor” folks.. it’s affecting everyone… but it’s impact is highest on those who generationally have not had a tradition of college – and ancillary not experienced in managing money and debt.

    I know many think “inner city minorities” when we say this but the problem extends to rural white America – as well as many high school only grads who go into the Armed services hoping to get their GA benefits as their ticket to a Middle Class life.

    All manner of higher ed -whether it be for-profit or “public” is more than glad to “sell” that product on a all-the-loan-you-want basis.

    and the further hell of it is that some higher ed is actually encouraging folks to go into debt to pay for high-school – remedial academics to get them on a college entrance level when those folks should not be going into debt for that.. and should not be at that higher ed – until they qualify to enter it.

    I still to this day do not understand how someone can achieve an acceptable SAT for college – then get there – and need remedial education? How does that work?

    At any rate – I agree – we need to find a way to funnel kids to Community College – “free” to get them enough education to actually work in the economy and to do so without going into huge debt. If, after that, they want to get “more” – then great…. by that time they should be in a better place financially and academically.

    Conservative types can lay all of this at the feet of “snowflake” tax and spend liberals.. and be near the truth perhaps – but I have yet to hear anything substantiative from them on what to do – instead.

    Mostly what Bacon writes is to describe the problem – then either stop short of a real alternative and/or speak in terms of why these folks are allowed into college or get a loan to begin with.

    We want to provide equal opportunity to people and especially those whose generational families never got an adequate opportunity to lift themselves up to “college” families.. we don’t want to let a flawed approach – essentially be the justification to once again deny them opportunity.

  7. Who is funding the study done by Judith Scott-Clayton? Is this from the Brookings Institute’s endowment or was special funding provided? I’m not suggesting anything, but think the funding source might (but might not) shed some light into the study.

    • I’m like you TMT – I want to know who did a given study and who funded it (that you’ll never find out for any of them).

      In this case – it’s Brookings.. a left-leaning group but it’s the kind of study you’d expect from more conservative groups in that they’re not candy-coating the data at all.. it’s brutal.

  8. I, for one, am getting very tired of Asian privilege. Asian – Americans are manipulating the US economy through hard work, a dedication to education and their willingness to postpone current enjoyment in favor of future success. Now I find the Asian Americans are even paying back the money they borrow for their education. When will this group assimilate into a society of victimhood, denial of personal responsibility for anything and an unquenchable thirst for government freebies paid for by “corporations” or “the 1%”. Did the Asian Americans fail to get the e-mail declaring that success in America is based entirely on white privilege?

    • I don’t have a good answer for that question other than to say that culture and cultural attitudes do play into this.

      For instance, one could ask why the rural parts of the USA are so mired in opioids and why do the rest of us have to now go “rescue” them? …

  9. Expansion of Medicaid; free tuition for community college; more money for WMATA; and we haven’t even seen the proposed budget for Fairfax County or the adopted budget for the Commonwealth. Meanwhile, NoVA’s economy continues to limp along with growth generally lagging many other metro areas.

    Acbar and Larry, which taxes should be raised to pay for your expansions of government? And by how much?

  10. @TMT – my understanding is that the MedicAid Expansion is not paid out of the general fund but from earmarked taxes..

    in terms of free community college – I’d offer tuition vouchers to students instead of direct funding of higher ed – and make that voucher enough to pay for basic community college – and not room and board or other student fees… In other words – use the same money but let people choose and if they want more than basic.. it’s on their dime.

    Oh.. and for NoVa, TMT :

    Virginia House budget includes $40 million for new Virginia Tech cybersecurity program

    … ” House budget writers anticipate the state will allocate $40 million to develop the Commonwealth Cyber Initiative or CyberX program and $10 million to set up the initiative in Tysons Corner. Virginia Tech would receive the funding in the second year of the two-year budget, and lawmakers expect that money will be matched with private investment.

    The Northern Virginia location would be the program’s hub, connecting other eligible state universities that want to take part in the initiative.”

    you should be THRILLED .. TMT… !!!

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