Association for Public Policy Analysis & Management

Although there has been substantial discussion about rising student loan debt, less discussed is that the burden of rising debt has disproportionately been shouldered by black students, who tend to rely more on loans than whites, have higher debt burdens, are more concerned about the affordability of loan payments, and are more likely default. In addition, 69% of blacks who dropout cite student loan debt as a primary reason for not completing their degree, compared to 43% of white students. Taken together, this suggests that student loan debt is an important stratifier by race among college going youth in the United States, where black students take greater financial risks in pursuing a college degree whites, and may reap fewer rewards. However, little is known about how racial gaps in student loan debt change over time as young adults age.

In this paper we aim to make three contributions to the growing literature on race and student loan debt. First, we ask whether racial disparities in debt change as young adults move through young adulthood. If black young adults are struggling with repayment, and also facing lower wages and higher rates of unemployment, racial disparities in student loan debt may increase as young people age. Second, we ask if parental wealth, postsecondary institutional characteristics, and young adult social and economic characteristics help explain why racial gaps in student loan debt persist, increase, or diminish across young adulthood. As part of this question, we will also ask whether the gap is largest, or increases faster, for students who left college without a degree (versus college graduates), 4 year versus 2 year grads, and for profit versus non-profit attendees. Third, we ask to what extent racial disparities in student loan debt contribute to black-white disparities in wealth among the current generation of young adults. As noted above, scholars have recently posited that student loan debt may be a new mechanism by which racial economic inequalities are perpetuated across generations, but to date there has been no clear test of this hypothesis.

To address these questions, we use data from the National Longitudinal Study of Youth 1997. We draw additional data from the Integrated Postsecondary Education Data System Delta Cost Project Database, which provides longitudinal information on characteristics of postsecondary institutions attended by NLSY97 respondents. We measure changes in student loan debt and wealth holdings at two points in time, using the age 25 and age 30 debts and assets modules. We will use regression models to examine changes in self-reported debt across these time points by race. We will also use decomposition techniques to quantify the extent to which student loan debt contributes to black-white differences in wealth.

If student loan debt is more burdensome, and consequential, for black young adults, this may suggest that one of the unintended consequences of rising college costs (and subsequent rising debt) is that it may have made the black middle class—which has long been an unstable and fragile position—even more so.