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Black student loan borrowers are defaulting at nearly twice the rate of whites: NY Fed

Black student loan borrowers are defaulting at nearly twice the rate of whites: NY Fed

By Jonnelle Marte

(Reuters) – Student loan borrowers from mostly black neighborhoods are almost twice as likely to default on their debt as borrowers from neighborhoods that are mostly white, according to research released Wednesday by the Federal Reserve Bank of New York.

Borrowers from black neighborhoods also tend to carry larger debt loads, the data showed.

Fed researchers found that people in black-majority neighborhoods were slightly more likely to borrow for college, with 23% of residents carrying student loans, compared to 17% of people in Hispanic-majority neighborhoods and 14% in white-majority zip codes.

Researchers wrote that this could be explained by difference in income, with people from lower-income households being more likely to need loans to pay for school. Still, the differences in borrowing rates were not large enough to fully explain the disparities in default rates and student loan balances.

Some 17.7% of borrowers in majority-black neighborhoods defaulted on their student loans, a proportion roughly twice as high as the 9% of borrowers from mostly white neighborhoods who defaulted on loans.

The average student loan balance in black-majority areas was more than $37,000 at the end of September, compared to an average loan amount of $29,000 for Hispanic borrowers.

The average loan amount for borrowers from black neighborhoods is about equal to the average income of $38,000 reported on tax returns in those areas in 2016, the most recent data available. That suggests those borrowers may have a high debt-to-income ratio, a measure that lenders often look at when determining credit worthiness.

The research was released alongside the New York Fed’s quarterly report on U.S. household debt, which showed overall debt levels among American households rose 0.7% in the third quarter to a record $13.95 trillion.

The New York Fed had previously looked at student loan outcomes according to income and found that people with lower and higher incomes were almost equally likely to have student loans and had similar loan balances. Lower income borrowers, however, had higher delinquency rates.

To incorporate race, the researchers used Census data to group zip codes by the race that was most prevalent in that area.

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Source : Reuters Link