Federal Reserve Study Shows High Student Loan Default Rates in Black Neighborhoods

The Federal Reserve Bank of New York recently released a new report that found that in the third quarter of 2019, there was $1.5 trillion in outstanding student loan debt in the United States. Almost 11 percent of this total student debt was 90+ days delinquent or in default.

While data on the race of borrowers and those in default is hard to come by, the report finds that student loan borrowers from zip codes that are primarily Black are twice as likely to be in default as borrowers from zip codes that are primarily White. The default rate in majority Black zip codes was 17.7 percent compared to a default rate of 9 percent in majority White zip codes.

The Federal Reserve found that “the average student loan balance is highest in Black-majority areas, at more than $37,000. This is especially remarkable when we consider that the average income reported on tax returns in these areas (in 2016, the most recent year available) was $38,000, implying very high debt-to-income ratios for student loans alone.”

The report concludes that “it is important to recognize that a significant share of students who borrowed to finance their education, with a disproportionate fraction from majority-minority areas, are falling behind the repayment requirements, even in a historically strong labor market. The large dispersion in borrowing and repayment experiences by race warrants further research into the roles played by differences in educational institutions attended, majors chosen, and in parental financial support.”


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