5 Ways All Student Debt Is Not Created Equal

by Alyssa Oursler | October 19, 2012 10:54 am

Yesterday, another report[1] rocked the Internet about the growing mound of student debt in our country.

According to it, two-thirds of the national class of 2011 finished school with debt — and with a whopping average bill of $26,600. That’s a 5% increase over last year’s already-record amount. Heck, total student-loan debt hit the $1 trillion mark earlier this year and now outweighs the country’s credit card debt.

But headline statistics fail to paint the full picture. While students all around are saddled with debt and often unable to find jobs to help pay it off, African-American students are hit the hardest in several ways. Let’s take a look at five of them:

More Likely to Enroll in For-Profit Schools: Remember that statistic saying two-thirds of students had debt last year? It doesn’t even include for-profit schools. This is an issue in itself, but it’s especially pertinent for African-American students because they’re more likely to enroll in for-profit schools[2] than they are other institutions.

The problem? For-profit students tend to be saddled with the highest levels of debt. Around 96% of students at for-profit colleges take out loans — compared to 13% at community colleges, 48% at four-year public universities and 57% at nonprofit colleges and universities. And over half of students that graduate from for-profit schools are saddled with more than $30,500 in debt .

This hasn’t been completely overlooked. A Senate committee released a critical and extensive, two-year report[3] this summer, and legislation was introduced last year aimed at remedying these issues.

Such scrutiny, along with other factors, is one reason Apollo Group (NASDAQ:APOL[4]) announced on Wednesday that it plans to cut 800 jobs and close half of its University Of Phoenix locations[5]. The stock tumbled to an 11-year low as a result, and Strayer Education (NASDAQ:STRA[6]), ITT Educational Services (NYSE:ESI[7]), DeVry (NYSE:DV[8]) and Corinthian Colleges (NASDAQ:COCO[9]) followed in its footsteps.

But even if for-profit colleges do work — or are forced — to lower debt loads for students in the future, that still doesn’t fix the damage that has already been done.

Highest Rate of High Debt: Unfortunately, things don’t get much better for many African-American students who don’t go to for-profit colleges. At four-year public and private nonprofit institutions, the percentage of black graduates with high levels of debt[10] — more than $30,500 — was greater than for all other races in 2010, regardless of the students’ income level. Asian students, on the other hand, had the lowest percentage with high debt regardless of income bracket.

Higher Default Rate: On top of that, the overall default rate for African-America students is one in three. That’s five times higher than the rate for white students and nine times higher than the rate for Asian students. Plus, as noted, African Americans are most likely to enroll in for-profit colleges — and for-profit students account for half of all federal defaults.

More Dropouts: While enrollments for black students have reached an all-time high, African-American students are more likely to not finish college. White students have a graduation rate of 62%[11], but that drops to 42% for African-Americans. And at for-profits, over half of attendees drop out after four months.

This is a problem because such students are still often saddled with student debt from the years they did attend, but don’t end up getting the degree necessary for a better job and higher salary to then pay off that debt.

Highest Levels of Youth Unemployment: On top of that, blacks also face the highest levels of youth unemployment — possibly as a result of this dropout rate, and possibly part of the reason so many African-American students default. This past summer, for example, unemployment among black youth soared to almost 30%,[12] while the rate was half that for whites and Asians.

Clearly, student debt is an overarching national issue and it’s indeed important to ask big-picture questions about whether college is indeed worth it. But the issue’s nuances also can’t be overlooked. In the end, African-American students feel the weight of student-debt the most heavily of all.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.

  1. another report: http://projectonstudentdebt.org/files/pub/classof2011.pdf
  2. more likely to enroll in for-profit schools: http://heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/29010.pdf
  3. extensive, two-year report: http://www.pbs.org/wgbh/pages/frontline/education/college-inc/senate-committee-comes-down-hard-on-for-profit-colleges/
  4. APOL: http://studio-5.financialcontent.com/investplace/quote?Symbol=APOL
  5. cut 800 jobs and close half of its University Of Phoenix locations: https://investorplace.com/2012/10/for-profit-colleges-fail-on-all-counts/
  6. STRA: http://studio-5.financialcontent.com/investplace/quote?Symbol=STRA
  7. ESI: http://studio-5.financialcontent.com/investplace/quote?Symbol=ESI
  8. DV: http://studio-5.financialcontent.com/investplace/quote?Symbol=DV
  9. COCO: http://studio-5.financialcontent.com/investplace/quote?Symbol=COCO
  10. with high levels of debt: http://advocacy.collegeboard.org/sites/default/files/Trends-Who-Borrows-Most-Brief.pdf
  11. graduation rate of 62%: http://www.jbhe.com/features/50_blackstudent_gradrates.html
  12. soared to almost 30%,: http://www.bls.gov/news.release/youth.nr0.htm

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