As many as 6.9 million Americans haven’t made payments on their student loans in nearly a year, which is up 6 percent from last year, according to data released last week by the U.S. Department of Education. A 2013 Federal Reserve Bank of New York report shows that the delinquency rate may actually be higher than people think because half of student loans are in forbearance, deferment or grace periods.
The number of severe delinquencies is also rising and those rates are significantly higher for for-profit college graduates. A Federal Reserve of St. Louis report pointed out that although for-profit colleges account for nearly 10 percent of college enrollment in the U.S. they represent almost half of all student loan defaults, according to U.S. Department of Education data.
For-profit colleges, which tend to be more expensive than comparable colleges and have poor job placement rates, also have a reputation for pushing risky private loans on the low-income, minority students they recruit. Sara Goldrick-Rab, professor of educational policy studies and sociology at the University of Wisconsin-Madison, said students of color are attracted to for-profit colleges because the traditional systems haven’t worked for them and for-profit colleges have much more powerful marketing and recruiting teams.
Why students of color are the face of student debt
“It’s quite clear that students of color face a lot of barriers in the current system. They are far less likely to have parents that completed college and they are far more likely to live in areas where attending traditional institutions is not the norm,” Goldrick-Rab said. “For profit-colleges, partly to their credit, spend a lot of time thinking about how to recruit [those] students. It isn’t happening just because students of color think for-profits are really attractive. It’s happening because the current system isn’t serving students of color very well. So we’re leaving them wanting something else.”
Attending these colleges means black and Hispanic students may be loaded with even more debt, and although the private loan industry fell hard in the recession, for-profit colleges still push expensive private loans onto their students. The Consumer Financial Protection Bureau (CFPB) sued Corinthian Colleges, as well as ITT Tech, over their private loan schemes last year. Because federal money can’t go to more than 90 percent of operating revenue, the CFPB said it believes Corinthian may have raised tuition so students would have to turn to private loans.
It’s common for students to not even realize they’re taken out private loans, said Ben Miller, senior director for postsecondary education at the Center for American Progress, because the process of taking out loans is so confusing.
“A lot of the time they don’t understand what they’ve taken out, but we’ve also made the process of college financing very confusing. Even if you stick with government loans, you’re probably getting subsidized loans, unsubsidized loans and Pell grants so you’re getting three different loans for a semester and thinking, ‘What are these things?’ It’s not designed to be particularly transparent or clear to the borrower,” Miller said.
According to a 2014 report released by the Institute for College Access and Success, an independent nonprofit organization, the volume of private loans has been increasing since 2010-11. The problem with private loans is that they have variable interest rates and don’t usually offer income-based repayment plans as the federal government does. In 2011-12, for-profit colleges had had a disproportionate share of private student loans.
How for-profit college debt erodes wealth for students of color
That amount of student debt really affects black and Hispanic for-profit college graduates, because it’s much harder for black and Hispanic college students to get the best return for the money spent. Unemployment rates are higher, income is lower, and for-profit colleges tend to be more expensive, which means black and Hispanic college students are saddled with more debt. According to a 2014 University of California — Los Angeles, Civil Rights Project study, over 52 percent of black students had student loans compared to a third of Asian and Hispanic students, and 42 percent of white students.
When breaking down the numbers by institution, 35 percent of black students took out $8,900 or more in federal loans for for-profit colleges in the 2011-12 academic year, compared to 19 percent at public universities, according to a report by The Center for Responsible Lending. The percentages were comparable for Latino students. As much as 80 percent of black students and two-thirds of Latino students did not complete their for-profit college program.
The debt students of color at for-profit colleges are grappling with is partly the symptom of telling families that college is the only path to economic progress while not offering many affordable options.
“We have framed college as the only way, the only viable opportunity to accumulate wealth. But for families of color, we’ve said that’s the thing you have to do but we’ve placed it out of their reach. And so the for-profits enter and they don’t make it more affordable. They just make it sound like it is,” Goldrick-Rab said.
Black and Hispanic families also have less wealth as well as income, making it even more difficult to pay off student loans. When looking at income versus wealth, the racial gap in wealth is three times larger than the racial gap in income, when considering black and Hispanic families, according to a 2013 Urban Institute report.
For black and Hispanic students, that wealth isn’t really protected by a college education, because debt weighs so heavily. During the recession, the wealth of black and Hispanic graduates of four-year college fell far more than white and Asian college graduates, according to a recent report by the Federal Reserve Bank of St. Louis. Between 2007 and 2013, median real net worth fell 72 percent for Hispanic families with college degrees, but 41 percent for Hispanic families without degrees.
For black families with college degrees, median wealth declined 60 percent compared to 37 percent for black families who hadn’t graduated college. Debt was considered a major factor for these gaps. The report found a 140 percentage-point difference and 100 percentage-point gap in debt-to-income ratios for black college-educated families and Hispanic college-educated families compared to black and Hispanic families without four-year degrees.
“I think the fact is we have to acknowledge that the wealth inequality has been there between blacks and whites for more than 100 years. It’s the legacy of slavery,” Goldrick-Rab said. “Rather than, over time, narrowing that gap and reaping the benefits of some of the good things that happened with the growing black middle class, the recession decimated that — not student debt, but the recession. But the student debt isn’t helping. It’s just another symptom of a broken system.”
What the federal government could do
For-profit college graduates have organized to advocate for student loan forgiveness from the U.S. Department of Education, but there is plenty of disagreement on how to remedy the problem. Goldrick-Rab worries that attacks on the department could lead to the conclusion that the federal government should stop giving student loans. She said she would rather policymakers focus the current political capital they have, thanks to the debt strikers, on college affordability for future students.
“I don’t think the attacks on the [U.S. Department of Education] for making loans are a good idea, because at the end of the day, all you do is get rid of federal loans and leave people with private loans,” she said. “And my main concern is students of color, who clearly, when we pulled back on PLUS loans, were left out in the cold. I don’t want to see a world where the only option for students of color is a private market. They’re not going to lend to them.”
Goldrick-Rab argued that if the department helps students who have already graduated, the approach should be targeted toward those who did not complete college, not college graduates who have a lot of debt.
“The people the federal government needs to intervene to help are the people who didn’t finish college, and maybe only did a year and they’re sitting there with $3,000 to $5,000 in debt and they can’t make headway on it. They’re defaulting on small amounts of money that seem huge to them,” she said.
Miller said that although long-term goals are important, the federal government has an obligation to do something for the students who have already graduated.
“If we make colleges more affordable, maybe fewer people go to these other colleges and borrow less and things get better, but that doesn’t solve the here and now. We have 10 or 15 years of oversight neglect in this space. A bunch of colleges got way bigger than they should have and ruined lives of thousands of people, and we have to clean up the mess,” Miller said.
He said one of the efforts the department needs to focus on is making sure that they anticipate bad behavior instead of acting after the fact. The U.S. Department of Education recently announced a plan to claw back the money they gave to for-profit colleges, but many of these colleges are now broke or defunct.
“The problem is by the time you catch them committing fraud, they’re broke. A viable business model doesn’t turn to fraud so you have to get them upfront,” Miller said. You have to make them pay on the theory that they might do the wrongdoing, not after they’ve already done it.”