New Demos Report Shows Higher Education’s Debt-Financed System Biased Along Class and Racial Lines

New York, NY–(ENEWSPF)–May 19, 2015.  During the next few weeks thousands of students across the country will graduate from college, an accomplishment that used to symbolize a step toward financial independence and entry into the middle class. However, unlike previous generations, today’s students will graduate with nearly $30,000 in student loans, and because they lack the resources and safety net of their peers, the costs—and stakes—are even greater for students of color and low-income students, a new Demos report finds.

In The Debt Divide: The Racial and Class Bias Behind the “New Normal” of Student Borrowing, Mark Huelsman, Demos Senior Policy Analyst, examines who is graduating and dropping out of college with debt by race and income. He finds that students of color and low-income students have to take out higher loans than white students and are much more likely to drop out without receiving a degree, in many cases because they cannot afford to continue, leaving them with significant amounts of debt.

“While college is commonly regarded as a key tool to move up the economic ladder, we have created a system based almost entirely on acquiring debt to get ahead, with no regard to how it would impact different communities,” said Huelsman. “This system is essentially pushing students of color and low-income students even farther down the ladder, adding an additional level of risk that previous generations did not take on when paying for college, and saddling them with additional disadvantages as they enter the workforce.”

Huelsman also explains that the current system based on borrowing ignores the potential that debt may be changing where students go to college, or whether it prevents some students from attending college at all. The prospect of taking on debt could discourage college attendance, particularly among communities that have seen decades of public policy that has reduced their ability to accumulate savings and wealth.

“We cannot ignore the reality that our dramatic shift to a debt-for-diploma system has greatly shrunk the opportunity for economic and social mobility among young people of color and working class youth,” said Tamara Draut, Demos Vice President of Policy and Research. “This debt-based system has transformed higher education into a system that that hardens race and class privileges rather than ameliorates them, limiting a new generation from fulfilling their dreams and upmost potential.”

Other key findings include:

Black and low-income students borrow more, and more often, to receive a bachelor’s degree, even at public institutions. At 80 percent, the vast majority of Black graduates take on debt, compared to 63 percent of white graduates. Latino students borrow at the same rate as white students to attend public colleges and universities, but borrow at far higher rates to attend private non-profit schools (87 percent to 72 percent, respectively).

Black and Latino students are dropping out with debt at higher rates than white students. At all schools, 39 percent of Black borrowers and 31 percent of Latino students drop out of college, compared to 29 percent of white borrowers. 38 percent of low-income borrowers drop out, compared to less than a quarter of their higher-income peers.

Black students are substantially more likely to cite financial reasons for not completing a degree program. Nearly 7 in 10 Black dropouts cite student debt as a primary reason for dropping out, compared to fewer than half of white students.

Students at for-profit institutions, who are disproportionately people of color, face the highest debt burdens and dropout rates. Two-year degree recipients at for-profit schools borrow almost the same amount as four-year degree recipients at public universities. Though Black and Latino students make up fewer than one-third of all college students, they represent nearly half of those enrolled in for-profit schools, and nearly two-thirds of Black and Latino student borrowers at for-profit four-year schools drop out (65 percent and 67 percent, respectively).

The consequences of student debt extend throughout borrowers’ lives, hindering their ability to build wealth, choose civic-minded jobs, or invest in new businesses.  At every level of education, households without student debt are more likely to own homes, pay lower interest rates on mortgages, and have retirement and liquid assets that are considerably larger than those households with student debt.

Hueslman concludes with policy solutions to reverse these trends. They include re-invigorating state investment in higher education, simplifying and reinvesting in our system of federal financial aid—rather than allowing the cost of college to continually outpace the value of the Pell Grant—to provide every student a guaranteed financial aid package that covers the majority of college costs, create new investments in programs like Federal Work Study, and reduce the need to take on debt.

This report continues Demos’ series looking into ways to reinstate the country’s once debt-free system of higher education in the 21st century, andcreate pathways to ensure a diverse, expanded middle class.

Source: www.demos.org