Study Finds Racial Disparities in Student Loan Defaults and Repayment Patterns

According to a new report from Pew Charitable Trusts, Black and Hispanic student loan borrowers are significantly more likely than their White peers to default on their loans and experience challenges in keeping up with their repayment plans.

For their report, the authors surveyed a sample of student loan borrowers who received undergraduate loans from 1998 to 2018. They also reviewed several prior academic studies on racial differences in student loan debt to better understand the factors contributing to disparities in repayment patterns.

Over the past two decades, 50 percent of Black and 40 percent of Hispanic student loan borrowers have experienced a loan default, compared to 29 percent of their White counterparts. Among borrowers who have defaulted, three-quarters of Black and Hispanic borrowers did so multiple times, compared to 56 percent of White borrowers.

These racial disparities in student loan challenges may be a result of historic financial difficulties affecting Black and Hispanic communities. For example, Black borrowers are more likely to have a negative net worth, while Hispanic borrowers are more likely to live in a state with an above-average cost of living. Both groups are more likely than their White peers to have lower household incomes, unstable employment, higher amounts of consumer debt, and financial responsibility for family members. Black and Hispanic students are also more likely to be the first in their family to attend college.

Furthermore, Black and Hispanic borrowers are more likely to face challenges with repayment options. Black borrowers are the most likely group (69 percent) to pause their payments. This can provide Black borrowers with a short-term financial reprieve, but greatly increases their interest accrual, leading to significant long-term debt. Additionally, Black borrowers are more likely to report difficulty completing the required paperwork with income-driven repayment (IDR) plans, and less likely to stay enrolled in these plans.

The COVID-19 pandemic led to a moratorium on student loan payments, which recently ended in October 2023. As new defaults are set to begin as early as summer 2025, the authors offer several suggestions for policymakers to address racial disparities in student loan debt. These include expanding borrower pathways out of default by creating a direct enrollment in IDR plans; restructuring the default collections system to ensure borrowers do not pay more in default than their regular payments; and increasing the effectiveness of repayment tools by connecting borrowers with the right plan for their situation.