Yesterday, I wrote about the distressing news that nearly half (49%) of all black borrowers default on their student loans within 12 years of entering college.
Unfortunately, even those who had earned a bachelor’s degree were more likely to default than degree holders of other races. According to data from the U.S. Department of Education, which for the first time examined long-term outcomes for student borrowers, and through a racial lens, only 9% of all borrowers who hold bachelor’s degrees default on their loans. However, a stunning 23% of black degree holders default.
I spoke with Ben Miller, senior director for Postsecondary Education at the Center for American Progress, who has written about the implications of this new federal data. He notes that employment discrimination is a likely factor in the high default rates of black borrowers. Clearly if you’re un- or underemployed, it’s difficult to pay back school loans.
I also spoke about the data with college financial expert Jessica Brown, known as the College Gurl. She pointed out a lack of financial knowledge as another part of the problem.
“Some students are not just paying their loans, but the loans that their parents took out on their behalf,” Brown told me by email. “Most black students come from low-income families who were unable to save for college. Therefore, they exhaust and apply for student loans without understanding the future financial impacts.”
Lack of Understanding
“Without understanding” may be operative words here. In fact, it was from Brown that I learned about so-called loan refunds—borrowing more money than you need, receiving a “refund,” and using that excess cash to fund a lifestyle.
Brown says, “Refunds play a huge role in student loan debt. If you are receiving a refund from an excess of loans, it is imperative to spend it wisely or send it back to the loan servicer to minimize your debt. It is critical for students to borrow what they need and not what they want so defaulting doesn’t happen.”
If students were taught sound financial management throughout grades K-12, would they make better choices about student loans, at the very least not default on them?
For the most part, we don’t know since according to the Council for Economic Education, only 22 states require high school students to take a course in economics, and only 17 require a personal finance course.
Take matters into your own hands. At the very least, read Black Enterprise. Then commit to reading books, listening to podcasts, and following financial gurus on social media. Even without having taken a course in personal finance, there’s enough free and low-cost information available to keep borrowers from defaulting on their loans.