Black and Hispanic student loan borrowers experience disproportionate repayment challenges compared to their white peers, says a new report from Pew Charitable Trusts.
Both populations of borrowers are also more likely than their white peers to face barriers to completing degrees and have a higher chance than their white peers of experiencing financial difficulty that can put them at risk of falling behind on payments and having their loans end up in default.
Pew’s research aims to provide insight into the significant repayment barriers that Black and Hispanic or Latino borrowers face and to bolster existing research on an array of factors that appear to have a significant impact on default rates varying by race and ethnicity. These obstacles can include lower household income, unstable employment, first-generation status, and competing family or work obligations.
Additional findings in the report include:
- Over the past 20 years, half (50 percent) of Black and two out of five (40 percent) Hispanic or Latino student loan borrowers have had a loan default, compared with less than a third (29 percent) of white borrowers.
- During this period, three-quarters of Black and Hispanic or Latino borrowers who experienced default reported doing so multiple times (74 percent for Black, 75 percent for Hispanic or Latino) compared with 56 percent among white borrowers.
- Black and Hispanic or Latino borrowers are more likely than their white peers to temporarily pause payments (69 percent, 56 percent, and 48 percent, respectively) in an effort to keep their loans in good standing. This strategy can provide a reprieve to borrowers in financial distress for a limited time but can also carry risks, such as the continued accrual of interest—which can substantially increase the cost of a loan over time.
Pew’s findings suggest that targeted changes to student loan default rules and requirements would be an important step in helping to address racial disparities in loan repayment. Among those changes: restructuring and expanding borrower pathways out of default; eliminating collections’ requirements that make it harder for borrowers to remain financially stable and repay their loans; and increasing the effectiveness of repayment tools by better matching borrowers with the right options.