A visiting scholar at the Federal Reserve Bank of St. Louis has posited an interesting hypothesis: that student loans are helping contribute to the racial wealth gap that exists in the United States.
Since student loans are largely based on income, the income disparities that already exist between African-American and Caucasian families will only widen because African-American families need to borrow more money to send their kids to college or university, according to the report.
“And while studies indicate that the lifetime earnings of those with a college degree continue to outpace those of individuals without, black students appear to be taking on a great deal more financial risk in pursuit of higher education,” writes Fenaba Addo. “They tend to rely on student loans more than whites, have higher debt burdens, express more concern about the affordability of loan payments, and are more likely to default.”
The average African-American family contributes $4,200 to a child’s college expenses, compared with $12,000 for the average Caucasian family. The average college-educated Caucasian makes $17,000 more than the average African-American at age 25, and there is a 7.6% drop in the amount of student debt that can be tied to every additional $10,000 in net wealth for young adults.
“If student loan debt is more burdensome and consequential for black young adults, one of the unintended consequences of rising college costs may be that the long unstable and fragile position of the black middle class will persist,” Addo writes.