In an America where communities of color have been shut out of traditional ladders of economic opportunity, a system based entirely on acquiring debt to get ahead may have very different impacts on some communities over others.


Today, taking out loans is the primary way individuals pay for college—a major shift in how our nation provides access to higher education. While concerns about the growth in college costs and student debt are nearly universal, much of this concern focuses on how college debt is impacting the economic well-being of college graduates and our overall economy. What has been less understood, or examined, is how this shift to a debt-based system impacts our nation’s historical commitment to ensuring everyone—regardless of race or class—can afford to go to college. We need to understand whether or not the “new normal” of debt-financed college is having an impact on our ability to make good on that fundamental promise.

This report, The Debt Divide, provides a comprehensive look at how the “new normal” of debt-financed college impacts the whole pipeline of decision-making related to college. This includes, whether to attend college at all, what type college to attend and whether to complete a degree, all the way to a host of choices about what to do for a living, and whether to save for retirement or buy a home. In an America where Black and Latino households have just a fraction of the wealth of white households, where communities of color have for decades been shut out of traditional ladders of economic opportunity, a system based entirely on acquiring debt to get ahead may have very different impacts on some communities over others.

Our analysis, using data from three U.S. Department of Education surveys, the Federal Reserve’s 2013 Survey of Consumer Finances, and existing academic literature, reveals a system that is deeply biased along class and racial lines. Our debt-financed system not only results in higher loan balances for low-income, Black and Latino students, but also results in high numbers of low-income students and students of color dropping out without receiving a credential. In addition, our debt-based system may be fundamentally impacting the post-college lives of those who are forced to take on debt to attend and complete college. Our findings include:

  • Black and low-income students borrow more, and more often, to receive a bachelor’s degree, even at public institutions. A full 84 percent of graduates who received Pell Grants graduate with debt, compared to less than half (46%) of non-Pell recipients. While less than two-thirds (63%) of white graduates from public schools borrow, four-in-five (81%) of Black graduates do so. Latino graduates borrow at similar rates and slightly lower amounts than white students.
  • Associate’s degree borrowing has spiked particularly among Black students over the past decade. At public institutions, well over half (57%) of Black associate’s degree recipients borrow (compared to 43% of white students), and borrow nearly $2,000 more than white students.
    A decade ago, 38% of Black associate’s degree recipients borrowed (compared to 32% of white students). In other words, a six-point gap in borrowing between white and Black associate’s degree holders has turned into a 14-point gap.
  • Students at for-profit institutions face the highest debt burdens. Associate’s degree recipients at for-profit schools borrow almost the same amount (only $956 less) than bachelor’s degree recipients at public colleges.
  • Black and Latino students are dropping out with debt at higher rates than white students. At all schools, nearly 4-in-10 (39%) of Black borrowers drop out of college, compared to 29% of white borrowers. Around the same number (38%) of low-income borrowers1 drop out compared to less than a quarter of their higher-income peers. Nearly two-thirds of Black and Latino student borrowers at for-profit four-year schools drop out (65% and 67% respectively). Nearly half (47%) of Black student borrowers drop out with debt at for-profit 2, and less-than-2-,year institutions.
  • Graduates with student loan debt report lower levels of job satisfaction when initially entering the workforce. High debt borrows report levels of satisfaction around 11 percentage points lower than those who graduated from college debt-free.
  • Average debt levels are beyond borrowing thresholds that are deemed by research to be “positive.” Studies suggest that small amounts of debt—$10,000 or below—have a positive impact on college persistence and graduation, but amounts above that may have a negative impact. Unfortunately, average debt levels for both associate’s and bachelor’s recipients are now well beyond the “beneficial” threshold.
  • While those with a college degree are more likely to save or buy a home, student debt could be acting as a barrier. At every level of education, households without student debt are more likely to own homes, have slightly lower interest rates on mortgages, and have retirement and liquid assets that are considerably larger than those households with student debt.

Download the full report to learn more

​This publication was funded in part by the Kresge Foundation