Yesterday, NCLC and 39 others sent a letter to Secretary John King demanding that the Department of Education look at its loan data to determine the impact that student loan defaults have on student loan borrowers of color.
In our letter, we asked the Department to collect and release the data necessary to ensure that student loans are a tool for economic advancement and not economic devastation for borrowers of color. Just as the collection of race-coded mortgage data through the Home Mortgage Disclosure Act (HMDA) enabled regulators and citizens to better assess whether mortgage providers were affirmatively furthering fair housing, data collection is needed in the higher education context to clarify how student loan servicers and collectors can affirmatively further the Department’s racial justice goals.
An Education Sector report from 2007 found that, ten years after graduation, the default rate for African American students was more than five times higher than the default rate for white students, and the default rate for Hispanic students was more than twice the rate for white students. It has been nearly a decade since that report came out. We want to know if things have improved (research suggests that it hasn’t), we want to know what policies have worked, and we want to know what policies have hurt borrowers of color. But in response to a FOIA request filed by NCLC and the ACLU, the Department’s Federal Student Aid office acknowledged that it has no policies in place to monitor the racial impacts of its collection practices, nor does it keep any data that would allow it to monitor how African American or Latino borrowers are faring.
As NCLC has said on many occasions (see here, here, and here), there are extraordinary penalties for borrowers who go into default. When a borrower has a defaulted federal student loan (a loan that is more than 270 days past due), the government can seize certain income and assets from the borrower without a court order. The borrower is also charged exorbitant collection fees. This means that defaulting on a federal loan is also very costly.
Many borrowers in default are required to pay more per month than similarly situated borrowers in good standing. For example, a single borrower making $25,000 per year with two children would have a $0 payment each month if in good standing on an income-driven repayment plan. That same borrower in default would likely have approximately $250 garnished from her wages. Additionally, that borrower would likely have her tax refund intercepted, losing approximately $4000 in Earned Income Tax credits. By one calculation, default increases lifetime payments on an average loan by 250% over standard repayment. As a result of these collection costs and practices, borrowers of color could disproportionately be paying more for their student loans than their white peers, both in the short term and over the life of the loan.
In the past year, the Department has announced improvements both to its servicing of federal student loans and to protecting students from abusive school practices. It also announced the new REPAYE repayment plan which will help make student loan payments more affordable. While these policies are an important step, having data examining race is critical to ensure that the benefits of these polices are felt by all borrowers.
