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Student loans disproportionately affect minority students, study shows

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Student loans disproportionately affect minority students, study shows

By Veronica Mierek, Contributing Writer

A new study done by researchers at the University suggests black and Hispanic students with loans are shown to have a lower net worth at 30 years old compared to those without, according to the press release.

The study shows black and Hispanic adults with outstanding student loans earn, on average, $36,000 less in net worth than their peers. The research also found these students have gathered $11,780 less in financial assets and $39,600 less in nonfinancial assets by the age of 30.

Min Zhan, professor of social work at the University and lead author of the research, said in the press release years of education is a strong positive predictor of net worth and greater assets. The student loans, or rather the education that came with them, are shown to be important in building wealth for young adults.

Before filtering by race or ethnicity, those who had taken out loans for higher education are shown to accumulate significantly more wealth.

“Two types of factors may contribute to wealth inequality across racial/ethnicity groups,” Zhan said in an email. “First, a person’s ability to build financial wealth.”

Owing to limited resources, lack of access to financial education and an overall lower educational status, minority households have more difficulties in saving and accumulating wealth, according to Zhan.

The second factor, she said, is access to opportunities to accumulate wealth. These include bank accounts, credit and other financial services.

“Minority households are less likely to have access to these products due to their limited financial resources, segregation, racial discrimination to obtain credits and other structural factors,” Zhan said. “In sum, minority households are in a vulnerable position in both ability and opportunities to save and to accumulate wealth.”

Household debt from education loans has risen sharply in the last decade, according to Zhan. Tuition rates at U.S. colleges are soaring, compelling more students to go into debt in order to finance their education.

“Black and Hispanic young adults are disproportionately burdened with education loan debt, partly due to their limited financial resources, less financial support that they may receive from their parents and less economic returns from their education,” Zhan said. “They are not only more likely to borrow but also borrow in higher amounts.”

According to Zhan, these higher levels of borrowing combined with higher interest and lower rates of graduation make it far more challenging to repay the loans.

“Addressing college students’ financial needs with additional education loans and other types of credit may be counterproductive for their future financial well-being and even may magnify racial disparities in wealth,” she said.

According to the press release, grants given out by the government that don’t require payback are the most effective way to help low-income students access college. Supporting these grants would have a better impact on higher education and reducing disparities in wealth than additional loans or credit.

“Equally important is to promote opportunities, like college savings plans, to low-income families so that they can save early on for their children’s higher education,” Zhan said. “In addition, it is also important to provide financial education so that young adults and their families can make informed decisions about financing college education.”

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