Commentary: Refinancing Student Loans Could Help Borrowers of Color Reduce Their Debt

student loans

Commentary: Refinancing Student Loans Could Help Borrowers of Color Reduce Their Debt

Student loan burdens are growing to unmanageable levels and action is needed.

Published December 19, 2013

The evidence is undeniable and the facts are troubling: people of color in the U.S., particularly African-Americans, are graduating with more student loan debt than their white counterparts. A recent issue brief by the Center for American Progress examines troubling data which shows that in our nation’s current economy, student loan burdens are growing to unmanageable levels and action is needed.

Student loan debt now tops more than $1 trillion, and recent data shows that 40 percent of students repaying their loans were in deferment, forbearance or default, clearly indicating that borrowers are in distress. Further, data released by the Department of Education shows that students enrolled in for-profit college degree programs are having trouble. The median repayment rate was 29 percent for an associate’s degree programs and 38 percent for a bachelor’s degree programs. These programs are more likely to affect communities of color because enrollment in for-profit colleges accounts for 11 percent of all students but 19 percent of African-American students and 12 percent of Latino students.

It doesn’t have to be this way. Federal policy can make it possible for student loan interest rates to fall through refinancing and student borrowers of color could realize significant savings! Organizations like the Center for American Progress and Generation Progress are mobilizing students and former students around this issue, with supporters of loan refinancing signing up to join this important effort.

In order to ensure that loan repayment does not interfere with economic activity and efforts to strengthen the middle class and to take advantage of historically low rates, students should be allowed to refinance their student loan debt. Under CAP’s refinancing plan, borrowers with federal student loans higher than current rates would have their interest rate reduced to the current level plus a small transaction fee. For students with a mix of federal and private student loans — who are more likely to be persons of color — the federal government would partner with private lenders to service the loans. The federal government would buy a financial interest in the loan and, in exchange, the lender would receive backing in case the loan went into default. Students would be guaranteed lower interest rates and would gain the consumer protections associated with federal loans, including the availability of deferments and forbearances and income-based repayment options.

As the population of our country becomes increasingly diverse, and students of color make up a larger share of the postsecondary education student body, it is time for Congress to take action and protect the next generation of Americans who are essential to our country’s economic and financial health. Given the growing amount of student loans entering repayment, it is critically important to provide refinancing options for student-loan borrowers. The additional funds in former students’ bank accounts would lead to increased economic activity that would boost our economy, particularly among student borrowers of color.

Elizabeth Baylor is the Associate Director of Postsecondary Education Policy at American Progress. Her work focuses on improving affordability, quality, and access to higher education for middle- and low-income Americans.

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(Photo: Alex Slobodkin/Getty Images)

Written by Elizabeth Baylor


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