22 Percent Default On Student Loans, Concentrated In Neighborhoods Of Color

Written by Dana Sanchez


Twenty-two percent of student loan borrowers default, and by 2023, that is expected to go up to 40 percent, according to a new report by the Urban Institute, a progressive Washington, D.C. think tank.

Previous research has shown that people of color are more burdened by education debt than whites because they have less parental wealth to draw on and higher rates of unemployment, CNBC reported.

Now the Urban Institute reports that people who default on their student loans are more likely to live in Hispanic and Black neighborhoods.

“More than 1 million student loan borrowers go into default each year. Outstanding education debt in the U.S. has tripled over the last decade and now exceeds $1.5 trillion, posing a greater burden to Americans than auto or credit card debt.”


Default on student loans is defined as not making a payment toward education debt in about a year, triggering the loan to be sent to a third-party collection agency.

Student loan defaulting is pretty common, and the average defaulter lives in an area where the median income is around $50,000, compared with around $60,000 for nondefaulters, said Kristin Blagg, a research associate focusing on education at the Urban Institute.

Black graduates hold nearly $53,000 in student loan debt four years after graduation—almost twice as much as their white counterparts, Brookings reported in 2016. At the time, Brooking said it had “new evidence that racial gaps in total debt are far larger than even recent reports have recognized, far larger now than in the past, and correlated with troubling trends in the economy and in the for-profit sector.”

The impact of default

  • Credit score can go down 60 points, to an average of around 550, considered “very poor.”
  • Low credit score can mean higher interest rates, delay buying a house and possibly be disqualified from certain jobs.
  • Government also has extraordinary collection powers with federal loans.
  • Student loans are one of the only debts that can’t be wiped out in bankruptcy.
  • Some states suspend or revoke state-issued professional licenses.
  • Some states suspend a driver’s license because of a defaulted loan.
  • The balance can increase around 10 percent due to collection fees and accumulated interest.

“At best, it delays participation in the American Dream,” student loan expert Mark Kantrowitz told CNBC. “At worst, they are shut out permanently.”

What to do if you’re behind on a student loan

  • Call your student loan servicer as soon as possible.
  • Find a more suitable payment plan that caps your monthly payment at a percentage of your income.
  • Put your loans into forbearance, a temporary debt postponement.