Will Better Data on Student Loans Help Close Racial Gaps?
Posted By Derek Johnson on August 30, 2016 at 2:23 pm
Does the federal student aid system disproportionately harm minority students? If so, is this due to external factors, or is it embedded in the system itself? The National Consumer Law Center and 39 civil and legal rights groups are petitioning the government for answers by collecting and reporting on a range of racial gaps that occur within the student loan system.
What racial gaps? African-Americans, Latino-Americans and other minority students are more likely than white Americans to have higher rates of default and delinquencies, carry increased debt loads and have greater representation at predatory for-profit universities.
“For nearly a decade, the Department of Education has known that student debt impacts borrowers of color differently from white borrowers,” write the petition’s authors. “Yet in that decade, the Department has failed to take sufficient steps to ameliorate the disproportionately negative impact on borrowers of color or even to conduct further research to discover the causes or the extent of disparities.”
The organizations asked the federal government to start tracking data around some of these racial gaps to determine whether aspects of the federal aid system contribute to the problem or do enough to safeguard minority candidates from its worst excesses. Specifically, the organizations would like the Department of Education to collect and catalog data about student loan outcomes by race and evaluate third-party contractors that collect on the government’s debts.
Persis Yu, staff attorney for the NCLC, told GoodCall in an email exchange that most debtors the organization works with want to stay current on loan payments but wind up being hounded by collections agencies and often aren’t informed of their options by loan servicers.
“Given that we have good reasons to believe that racial disparities in student loan default exist and given how harmful the methods are to borrowers and their families, the government should focus on making it easier for borrowers to succeed on their loans through consistent and quality loan servicing than to unduly punish them for failing to navigate a Kafkaesque system,” Yu said.
In March, the NCLC and the American Civil Liberties Union filed a lawsuit under the Freedom of Information Act to compel the department to make this kind of data public. DOE officials responded by claiming the department does not have data around such outcomes. “Who gets assessed additional fees, has their wages garnished or has their debts offset during the collections process are important questions that must be answered. We should not allow the Education Department’s lack of monitoring to exacerbate existing racial disparities,” the ALCU’s Rahsaan Hall said in a press release announcing the lawsuit.
A mixed record on closing racial gaps
While the groups who signed the letter are calling for more action, the Education Department has taken several steps in recent years to mitigate the effects of student debt and rein in poor-performing schools in the for-profit sector. Under the Obama administration, enrollment in income-based repayment programs has skyrocketed.
Income-based repayment caps a graduate’s loan payments to a percentage of his or her monthly income, and the administration credits the surge for a sharp drop in the numbers of delinquencies and defaults reported by borrowers. For students whose college experience has left them with high debt totals and bleak job prospects, the programs can lower or eliminate student debt in the short-term, although critics contend it increases a student’s overall debt burden in the long run.
Yu said awareness of income-driven repayment among student borrowers is low. This leaves borrowers vulnerable to debt-relief scams from private companies, which charge students a fee to help “lower” their monthly bills – primarily by signing them up for free government programs such as income-driven repayment.
“Of the borrowers I work with, at the time of default, almost none were aware of the existence of income-driven repayment plans,” Yu said. “Most borrowers I hear from want to be in good standing on their loans but don’t know how.” They are unaware of options, such as refinancing student loans, which won’t make the debt go away, but make it easier to handle.
The Obama administration also has aggressively pursued bad actors in the for-profit education sector, taking a range of regulatory actions designed to rein in poor-performing schools and punish institutions that use fraudulent practices to lure students. After levying a $30 million fine on Corinthian Colleges for deceptive marketing practices, the for-profit chain closed several campuses and students unable to finish their degrees were provided loan forgiveness.
The administration also fought in court (and won) the right to implement new “gainful employment” regulations forcing for-profit schools to prove their degrees lead to good paying jobs. This past year the Department of Education revoked the authority of the biggest for-profit accreditation agency, rolled out new rules for third party debt servicers, and just this past week banned the for-profit ITT Tech from using future federal student aid.
The college access conundrum
The letter sent by the NCLC underscores one of the conundrums facing higher education policymakers: how to ensure and expand college access to low-income and minority students while protecting them from the worst excesses of a system many experts consider significantly broken.
During the past 20 years, minority college enrollment has surged, opening up a generation of new students to the lifetime earnings benefits of a college degree. At the same time, tuition prices and student debt have steadily risen to crisis levels, throwing many of these new entrants into long-term debt and opening up racial gaps.
It’s also no secret that for many for-profit universities, recruiting low-income and minority students is a big part of the business model. Though non-whites make up about 30 percent of the student populations at public and private nonprofit schools, they make up nearly half of the for-profit sector student population:
Source: National Center for Education Statistics
This is a problem because for-profit graduates lag other college students in a range of metrics and outcomes. For example, according the National Center for Education Statistics, the average six-year graduation rate is 58 percent at public nonprofit universities and 65 percent at private nonprofits. However, just 27 percent of students at for-profit schools graduated in the same timeframe. Organizations such as Complete College America have long made the case that the longer students take to complete college, the more they borrow and the less likely they are to finish their degrees.
In 2014, economist Rajeev Darolia sent nearly 9,000 fake resumes to employers and found that “students” with for-profit degrees were treated the same as applicants with community college and high school degrees. “We find no evidence that job applicants who attended for-profit colleges attract greater interest from employers than those who attended public community colleges or no college at all. These findings are particularly noteworthy considering the high cost of for-profit college attendance,” Darolia concluded.
The NCLC and other organizations believe that steps such as increased access to income-driven repayment will help the situation, but say that the government will not be able to fully address racial gaps in the federal student aid system until it begins specifically tracking data around racial outcomes.
“It is time for the Department to leverage its tremendous resources and ensure that student loan policies work for all borrowers. For all these reasons, we call on the Department to collect and release the data necessary to learn the true extent of the impact of student loan debt on communities of color and to work with borrower and consumer advocates to ensure that student loans are a tool for economic advancement and not economic devastation for borrowers of color.”