Association for Public Policy Analysis & Management

Education debt has remained central to ongoing higher education policy discussions. However, less attention has been paid to evidence on the distinctive financial positions of low-income or minority college students. While enrollment of minority and lower-income students has steadily increased at U.S. colleges and universities, these students incur disproportionate levels of education debt in the process. State and federal-level reductions in student aid programs, coupled with wealth and asset gaps by race, may lead these students to rely more heavily on education loans to pay for a college education. Importantly, excessive student debt contributes to higher dropout and default rates, delayed financial investment, and economic instability for minority college attendees.

This paper uses data from a large-scale, national sample of low- and moderate-income (LMI) households (n = 17,684) in the Refund to Savings (R2S) initiative and is the first study to evaluate whether racial or ethnic disparities in debt exist when analysis is refined to the LMI population. In this paper, the authors use rigorous techniques to disentangle confounding socioeconomic risk factors associated with both race and student debt. First, a two-part model (Duan et a., 1984) was estimated to account for a large number zero observations in the dependent variable (student debt amount). Results of the two-part model indicated that black students are two times more likely to report student debt and predicted to accumulate $7,175 more than white students.

The authors then performed propensity score matching (Guo & Fraser, 2014) to match respondents based upon observed demographic and financial characteristics. This matching estimator generated results comparable to the two-part model. The authors find that even after accounting for potential confounders of education debt accumulation, black students are significantly more likely to rely on education financing and accumulate the highest levels of debt among the other racial or ethnic groups in the analysis. Furthermore, the results suggest that significant gaps in debt accumulation persist even after black students graduate from college. Among equally educated LMI households, black college graduates are predicted to incur $6,975 more in education debt than white graduates.

This paper is the first to provide evidence to suggest that LMI black students accumulate significantly more debt in pursuit of a higher education than white students, even after using rigorous methods to account for race- and debt-related confounders. This finding is crucial in light of the financial vulnerability of this population both before and after college, potentially contributing to diminished returns and exacerbating racial disparities in educational outcomes and wealth accumulation. Based upon this finding, we evaluate recent trends in educational financing policy and the growth of the for-profit college sector. In addressing this disparity, we discuss evidence-based policies and interventions that can continue to enhance access to college for minorities, while ensuring equitable economic and educational outcomes after graduation.