Higher education loans, the second largest kind of debt for consumers after mortgages, now total upwards of $1.3 trillion and saddle millions of Americans in debt. A new data visualization tool created by the Washington Center for Equitable Growth sheds light on the geographic patterns of student debt in the United States.
Nationwide trends in the data
The interactive map draws on credit reporting data on student debt compiled by Experian as well as income data from the American Community Survey conducted in 2013. Researchers used the Experian data to measure the average loan balance and the delinquency rate in zip codes throughout the country. When combined with the ACS demographic data, this allows the resulting choropleth maps to capture the stark differences between regions of the United States as well as well as variations within metropolitan areas.
The data show a negative correlation between zip code median income and delinquency while it shows a positive correlation between income and average loan balance. In other words, across the U.S. more affluent individuals tend to have larger loan balances but are more likely to be able to successfully make payments on those loans, while poorer borrowers take out smaller loans but are also more likely to default on their loans.
The same tool allows the user to compare the delinquency rate against the African American and Latino population of each zip code. This feature demonstrates that nationwide and in Connecticut, delinquency is a much bigger problem in communities with larger minority populations. The Washington Center also found that race still exerts a significant effect on delinquency even when controlled for income. For example, among zip codes with similar median incomes, a larger share of African Americans or Latinos is often accompanied by greater rates of delinquency.
Maggie Thompson, the Executive Director of Generation Progress, argued in an op-ed on Univision’s website that the links between communities of color and student debt makes it clear that educational attainment is not just an economic justice issue but also a racial justice issue. Minority students are less likely to attend more selective universities (where the benefit of higher education is greatest) and are also less likely to get a job offer than similarly qualified white applicants. Without being able to rely on the safety nets attending college is supposed to provide, Thompson says, “young people, and young people of color especially, are too often trapped in this vortex of inequity.” This perpetuates the disparities of wealth between minority communities and their white counterparts - and consequently makes students of color less likely to be able to make payments on their loans.
A closer look at Connecticut
Connecticut currently has the 7th highest average student loan debt in the country. The average burden for the graduating class of 2014 was $29,750 - $800 above the national average. A higher percentage of students attend private for-profit universities than in other states, one explanation for why Connecticut’s figures are above average.
Even so, Connecticut’s system of public universities graduate students that are less likely than average to default on their debt. The University of Connecticut has a three-year “nonrepayment rate” of 7.1%, according to Debt by Degrees, a database tool created by ProPublica that allows users to look up how lower-income students fare with their loans at different schools. This figure is the 16th lowest out of 174 public 4-year research universities that were included in the database. On a list of 266 public 4-year “master’s colleges,” Central Connecticut State University performed slightly worse with a nonrepayment rate of 14.8% but still placed in the top half nationwide.
The data trends within Connecticut displayed on Mapping Student Debt, the Washington Center’s new mapping tool, are consistent with those that researchers have identified on a national scale. Average loan balance is much greater in the more affluent towns of Southwestern Connecticut as well as in the suburbs of cities such as Hartford and New Haven. While most of Connecticut boasts low to extremely low rates of delinquency, the urban cores of Connecticut’s cities are on the opposite side of the spectrum with high to extremely high levels of delinquency. As Connecticut has the highest income inequality in the country according to the Economic Policy, which looked at the average income of the top 1% versus that of the bottom 99% in each state, it is unsurprising that there is great variation in average loan balance and delinquency when compared against median income.
Much of Connecticut’s minority population is concentrated in its larger cities, especially in Bridgeport, Hartford, New Haven, and Waterbury. These cities are the same ones that show higher rates of delinquency, even though their average loan balances tend to be lower. As a result, Connecticut mirrors the national conflation of race, income, and student debt that exists nationwide.
Implications for borrowers
Student loans pose a burden for Americans who need more education to advance - or in some cases start - their careers. The 2015 DataHaven Community Wellbeing Survey asked respondents who have had a job in the last 30 days whether they thought they had the kind of education and training they needed to get ahead in their careers or needed more. 27% of Connecticut residents surveyed said that they needed more, compared to over 40% among African American and Hispanic respondents. People without a job in the last 30 days were even more likely to say that they needed more education and training at 36% statewide - an increase reflected in each racial/ethnic group surveyed. Younger respondents in both questions said they needed more education and training than older respondents.
High levels of student loan delinquency are problematic because higher education is one of the main ways how Americans improve their incomes and climb the economic ladder, as many respondents to the DataHaven survey attested. Middle-income Americans who take out costly student loans to finance education for career advancement struggle to pay them back later. Americans whose incomes fall in the lowest part of the distribution (and particularly minority borrowers) often lack access to any form of credit, and therefore cannot pay for any additional degrees that will allow them to get the employment they need to achieve financial security.
Increased rates of delinquency, particularly among poor and minority citizens, also expose borrowers to job market discrimination. Some employers use credit checks as part of their hiring process, a practice that many argue is unduly burdensome and prevents Americans from getting the jobs they need to effectively pay off their student loans.
Eleven states - including Connecticut - have enacted laws preventing the practice. Researchers at Harvard University and the Federal Reserve have found that these laws are able to increase employment among low-credit populations by somewhere between 2.3 and 3.3 percent. Yet a recent study from Demos, a think tank studying political and economic inequality in the United States, suggests that existing laws limiting the use of credit checks by employers have largely gone unenforced. The report found that no legal action or enforcement has taken place because of these laws, even in states where they have been on the books for several years. This raises the question of whether the lack of awareness about these legal protections is limiting their effectiveness and allowing many employers to operate without full compliance with the laws.
Policies that tackle student debt
In addition to prohibiting employers from using credit checks as part of the hiring process, many states and federal agencies have looked at other laws and policies to address the increasing problem of student debt in the United States.
The Consumer Financial Protection Bureau, a federal agency responsible for consumer protection in the financial sector, published a report last year on student loan servicing that laid out several recommendations for reform. Collecting comments from about 30,000 borrowers and industry leaders, the CFPB found that loan servicing programs (the intermediaries between lenders and borrowers) often drop the ball on informing borrowers of due payments and actively discourage borrowers from seeking alternative ways to pay down their debt. The report called for more robust federal and state regulation, stronger servicer communications, and greater access to public data on student loan performance. Although there is currently no national standard for regulating the student loan industry, many states are leading the way in reforming this sector.
Connecticut’s state government is widely recognized for taking an active role in reversing the rise of student debt and better educating borrowers about their loans. In 2015, Gov. Dannel Malloy signed new bills into law addressing the issue. One allows borrowers to refinance their student loans at lower prices. Another established a Student Loan Bill of Rights while giving the Connecticut Department of Banking to better oversee and regulate the entire student loan process. Together, the bills seek to enforce institutional accountability and make the process more transparent while helping borrowers make payments on their existing debt.