With 44 million consumers owing student debt that now reaches $1.5 trillion and still climbing, a lot of people want to better understand how and why this unsustainable debt trajectory can be better managed. For Black consumers who typically have less family wealth than other races and ethnicities, borrowing is more frequent, and as a result, often leads to five figure debts for undergraduate programs and well beyond $100,000 for graduate or professional degrees.
Besides deep debt incurred to gain a college education, another sphere of concern presents yet another financial hurdle: student loan defaults.
New research by Judith Scott-Clayton of the Brookings Institution, focuses on explaining these defaults and what happens once they occur. Her research shows that a large racial gap exists in default rates between Black student loan borrowers and their White counterparts. This gap can only be partially explained by controlling for multiple socio-economic and educational attainment factors.
After accounting for variations in family wealth and income, differences in degree attainment, college grade point average and even post-college income and employment, a stubborn and statistically significant 11 percentage point gap remains between Black and White student loan borrowers. Before adjusting for these factors, the gap is 28 percent, with Black borrowers defaulting at a rate of more than double that of Whites—49 percent compared to 21 percent over 12 years.
The research also finds a strong disadvantage to attending for-profit colleges, in which Black students disproportionately enroll. More than a decade after leaving school, and accounting for the same background and attainment factors listed above, loan defaults of for-profit college borrowers exceed those of two–year public sector peers by 11 percent.
The author points to the need to understand what influences the “stark” remaining divide.
“The better we can understand what drives these patterns,” wrote Scott-Clayton, “the better policymakers can target their efforts to improve student loan outcomes.”
Among these influences are the widening racial wealth gap. As Black student debt is typically heavier and often takes longer to repay, the ability to build wealth becomes a heightened challenge. Years that might have been opportunities to become homeowners or begin other investments can have lengthy deferrals, due to large student loan debts.
Similarly, a new report by the Consumer Financial Protection Bureau (CFPB) that focused largely on student loan repayment reached a similar conclusion. Authored by Thomas Conkling, the new CFPB research examining borrowers who were unable to fully repay their student loans early, “suggests that their required monthly student loan payments constrained their ability to pay down other debts.” CFPB also found that the typical student loan repayment lasts a full decade with equal monthly payments.
Further, borrowers repaying on schedule are not more likely to become first-time homeowners.
A portion of the Brookings report provides useful information that could help those at risk or in default.
Loan “default is a status, not a permanent characteristic.” Four ways to get out of default are cited: rehabilitation, consolidation, paying in full, or have a loan discharged.
For my money, paying in full is seldom a practical option unless someone’s lottery numbers hit a jackpot. But the other three options offered could begin to chart a path in important ways.
Rehabilitation of student loan defaults can only be used one time. It also requires, according to Brookings, successfully making nine payments over 10 months.
A second option, consolidating defaulted loans, can end default more quickly and is used by more than half of Blacks who have defaulted.
In recent years, loan discharge has been frequently pursued, especially by former students of now-defunct for-profit institutions. Others choosing public service careers may be eligible for loan forgiveness depending upon the type of loan, servicer assistance and employment.
Any loan default will worsen credit scores and will be a part of a consumer’s credit record for up to seven years. During this time, the cost of credit for other goods and services will be higher. It will also cost many job applicants to lose out on employment opportunities. For several years, credit score screening has become a part of the job application process for many employers.
“The numbers show that our current system is not working, and that higher education is not providing the pathway to financial stability that it once accomplished,” Policy Counsel and Special Assistant to the President of the Center for Responsible Lending, Ashley Harrington said. “We need federal and state policymakers to take concrete steps to effectively address this crisis, such as better regulation of for-profit colleges.
“As for loan servicers, it is time to hold them accountable for their errors,” continued Harrington.
“Standardizing income-based repayment plans, and when appropriate, refinancing of student loans, should be offered as alternative options before allowing borrowers to default.”
Charlene Crowell is the Communications Deputy Director with the Center for Responsible Lending. She can be reached at charlene.crowell@responsiblelending.org.
President Donald Trump has proposed combining the U.S. Departments of Education and Labor. After asking educators for their opinions about the merger, Education Week reported that “educators, by and large, don’t seem to be fans of this idea.” Anthony Carnevale, the director of the Georgetown University Center on Education and the Workforce has a different view. In a June 22 Washington Post op-ed defending the merger, he wrote, “Because education and careers are inextricably bound, we need to take an ‘all one system’ perspective that connects the education and career dots from middle school through college and early careers.”
Carnevale is right that a large majority of students—and their families—value education primarily because they want better careers. In a 2015 national poll of incoming college students from the Cooperative Institutional Research Program, 85 percent of respondents ranked being “able to get a better job” as a very important reason for pursuing a college degree. But he is mistaken when he advocates merging the departments of Education and Labor. Too many of education’s other gifts are at stake.
Education’s purpose is more than career preparation. Leaving curricular decisions up to employers is not healthy for America. For example, Thomas Jefferson’s rationale for supporting public education was the need for an informed citizenry in a healthy democracy. Today, the lack of an informed citizenry may be our country’s biggest problem. Only 36 percent of eligible voters cast ballots in the last midterm elections four years ago.
“Leaving curricular decisions up to employers is not healthy for America.”
At a Tuesday event hosted by the Brookings Institution’s Center on Children and Families, U.S. Secretary of Education Betsy DeVos in a speech compared the response of the education establishment to taxi services undercut by services like Uber and Lyft.
But in a subsequent discussion Brookings’ Grover J. “Russ” Whitehurst asked DeVos whether she was concerned that if school choice expansion is implemented badly it could actually hurt educational outcomes…
U.S. Secretary of Education Betsy DeVos told an audience at the Brookings Institution Wednesday that she wouldn’t necessarily approve every state’s plan for the Every Student Succeeds Act right off the bat. And at the same event, she continued to push her favorite policy: school choice.
DeVos didn’t say specifically that states would have to embrace choice in their plans in order to pass muster with the department. But the juxtaposition still had some folks nervous, including Sen. Patty Murray, D-Wash., who told Politico that she hopes DeVos “clarifies her comments and makes it clear that she does not plan to threaten states or hold their proposals hostage unless they conform to her privatization agenda.”
So, could DeVos legally reject a state’s plan because it didn’t include choice, even if she wanted to?
Short answer: No. That would be a violation of ESSA.
Longer answer: Both Democrats and Republicans who worked on ESSA say doing that would violate the long, long list of prohibitions on the Education Department’s authority in the law, one of which says the secretary can’t tell states what kinds of interventions they can or can’t use with their lowest-performing schools.
To be sure, there are definitely parts of ESSA that choice lovin’ states and districts can get excited about. The law allows states to set aside Title I money for course choice, free tutoring, and public school choice. It permits states and districts to offer public school choice to students in struggling schools, or turn low-performing schools into charters or magnets. And it gives 50 districts the chance to try out a weighted student funding pilot. The pilot could smooth the way for choice programs in districts that are interested in creating them, but doesn’t have to be used for choice.
Importantly, though, all those things are totally and completely optional.
DeVos can use her megaphone as education secretary to draw attention to the parts of ESSA that states and districts that are gung-ho on choice can use to their advantage. But she can’t reject a state’s application if they say thanks-but-no-thanks to setting aside some Title I funds for course choice.
“She can cajole, plead, request, etc. but she cannot require,” said a Senate GOP aide who worked on ESSA.
And that interpretation is bipartisan. Anne Hyslop, a former Obama administration official who worked on ESSA and is now at Chiefs for Change, tweeted something pretty similar.
@benjaminjriley short answer: based only on statute, having a hard time finding the hook. Choice is totally optional in title I.
Photo: Education Secretary Betsy DeVos talks with Russ Whitehurst, senior fellow in the Center on Children and Families in the Economic Studies program at the Brookings Institution, on March 29 in Washington.
By Arnold Packer
