Increased rates of delinquency, particularly among poor and minority citizens, also expose borrowers to job market discrimination. Some employers use credit checks as part of their hiring process, a practice that many argue is unduly burdensome and prevents Americans from getting the jobs they need to effectively pay off their student loans.
Eleven states - including Connecticut - have enacted laws preventing the practice. Researchers at Harvard University and the Federal Reserve have found that these laws are able to increase employment among low-credit populations by somewhere between 2.3 and 3.3 percent. Yet a recent study from Demos, a think tank studying political and economic inequality in the United States, suggests that existing laws limiting the use of credit checks by employers have largely gone unenforced. The report found that no legal action or enforcement has taken place because of these laws, even in states where they have been on the books for several years. This raises the question of whether the lack of awareness about these legal protections is limiting their effectiveness and allowing many employers to operate without full compliance with the laws.