In an era of skyrocketing tuition costs and repeatedly slashed public education budgets, increasing numbers of American students have resorted to taking out loans in order to fund their education. Doing so saddles the student with a heavy burden of debt; the total accumulated student debt in the United States has been recently valued at approximately $1.5 trillion and rising, accounting for roughly 10% of all documented household debt. Statistics for students graduating in 2016 reveal that the average amount owed per student was roughly $37,172.

These statistics do not fully take into account the disproportionate effect that student debt has on students of color, particularly black students. As of 2016, black graduates owed approximately $7,400 more in debt upon graduation than their white peers. This additional financial burden is neither brief nor insignificant. The disparity between black and white graduates continues to increase over time, resulting in black graduates, on average, owing nearly double the amount owed by white graduates.

Black graduates are also more likely to have higher student debt balances four years after graduating than at the time of their graduation. While more likely than their white peers to continue into graduate education, they are more likely to pursue graduate studies at for-profit institutions, leading to an even greater increase in debt. Current research finds that students burdened with heavy debt are more likely to accept lower-paying jobs, further increasing the difficulty of loan repayment. Having fixed obligations increases aversion to risk, making graduates saddled with them more inclined to settle for less optimal positions. This effect is amplified by the significant wage gap between white and non-white employees.

One option for these students is to consider income-based repayment financing, such as income-share agreements (ISAs). Such plans create better career prospects for those who choose to use them; simulations indicate that users experience a net annual income increase of 3.6% ($1,852) due to superior job selection in the decade following their graduation. They also owe significantly less than conventional borrowers: roughly $11,873 on average. This research suggests that borrowers in a lower-earning economic bracket benefit significantly more from flexible, wage-based repayment than they do from pursuing conventional loans.

1. Zack Friedman, “Student Loan Debt Statistics in 2018: A $1.5 Trillion Crisis,” Forbes, https://www.forbes.com/sites/zackfriedman/2018/06/13/student-loan-debt-statistics-2018
2. Martin Gervais and Nicolas L. Ziebarth, Life After Debt: Post-Graduation Consequences of Federal Student Loans (2017)
3. Judith Scott-Clayton and Jing Li, Black-white disparity in student loan debt more than triples after graduation (Brookings, 2016)
4. Yan Ji, Job Search with Debt Burden: Aggregate Implications of Student Loans (2016)