Americans collectively owe $1.63 trillion in student loan debt, an amount larger than the gross domestic product (GDP) of most countries on Earth.

It’s a huge financial burden that not only continues to grow but it also places substantial pressure on an already economically vulnerable populace. This is especially true for young people and others just getting started with their careers and their families. Those from lower-income backgrounds are particularly affected. Looking at student loan debt by race, it becomes apparent that while this issue affects almost everyone in the United States to some extent, some groups are having a harder time than others.

Understanding Student Loan Debt

Student loan debt is the end result of taking out money to pay for an education. It includes the costs of any tuition not covered by scholarships, textbooks, and living and other associated expenses. The escalating price of higher education has made it extremely difficult to afford without some form of financial assistance.

In the likely event that a student cannot find a sufficiently high-paying job after graduation, they may find it challenging to pay back their loans. Delinquency is the consequence of missing a repayment due date by even one day.

There is a risk of defaulting after a certain period of delinquency, depending on the type of loan. Each of these conditions can have a substantial impact on a person’s financial circumstances, particularly when it comes to their credit score and credit report.

As of Q3 2023, 43.4 million Americans have student loan debt. Costly student debt repayments can make it difficult for young people to save money for long-term goals, such as raising children, buying a house, or funding a retirement plan.

However, student debt is not equally distributed across Americans. Members of some racial or ethnic groups are more likely to have larger student loan debt balances on average.

Factors Affecting Student Loan Debt

While student loan differences can be both a symptom of greater socioeconomic inequities and a reinforcement of them, other factors also can influence how much debt a group will collectively owe:

• Differences in Income: Students and families with less income will have less money to pay for college leading to more borrowing and larger loan balances. Additionally, those with higher incomes after graduating will have an easier time paying down their debt, and those with lower incomes will have more trouble paying off student loans. The Bureau of Labor Statistics (BLS) releases a quarterly report that shows a wage gap by race does indeed exist.
• Career Distribution: Similarly, if more members of a particular group have careers in high-paying industries—such as science, technology, engineering, and mathematics (STEM) fields—they will be able to repay their student loans more easily. The inverse is also true: Groups with a disproportionately large presence in low-wage positions, such as food service, will likely take longer to fully repay their debt or have more trouble meeting minimum required payments.
• Credit and Lending Issues: The bulk of student loan balances are federal loans, which don't check credit scores and have preset below-market interest rates that are the same for everyone. However, these loans have borrowing limits, which may lead to the need for private student loans. It takes at least decent credit to secure a private student loan, and good credit to secure a lower interest rate. Additionally, those with bad credit or belonging to certain groups may fall victim to predatory lending, making their student loan situation even more difficult.
• Familial Wealth: Affluent families may choose to finance the entirety of their child’s education, leaving them debt-free upon graduation. Conversely, those who are struggling financially, likely won't have funds to pay for their children's college education. This obviously leads to the children financing all or most of the cost of college. Additionally, if the family's income is low, recent graduates may begin helping their family financially after securing a better-paying job. This takes away from funds for student loan payments.
• Parental Obligations: Young parents, particularly single ones, must factor child care into their budgets. Depending on their income, they may be unable to afford this expense, basic necessities, and paying down their debt.
• Local Cost of Living: The affordability of basic necessities, such as housing, can vary substantially. Those who study in areas with a higher cost of living will, of course, need to borrow more money to afford their living expenses.
• Type of Institution: The cost of attendance at an institution can vary based on whether it’s public or private, for-profit or nonprofit, and two-year or four-year. These differences show up in tuition, fees, room and board, books, and other academic supplies.
• Type of Loan: There are two basic types of student loans: federal loans funded by the U.S. government and private loans issued by banks and other non-federal lenders. Multiple factors can determine how difficult each one is to repay. For example, private loans lack flexible repayment terms or forbearance options that federal loans have. They also tend to have higher interest rates.
• Graduation Status: If a student takes out a loan for college but doesn’t graduate, they’re stuck with a significant debt without the economic benefits that come with a degree. Additionally, those seeking a postgraduate education may need to take out additional money on top of the debt accumulated from undergraduate education.

Special Considerations

Before we share our findings on how student loan debt differs by race, there’s one more issue to discuss: Much of the available research on the differences in student loan debt by race compares Black and White borrowers only. There is less information that includes the full range of racial groups within the United States. Certain data sets covering one or more group(s) don’t include others. Or the information on the wider range of groups may originate from a different (and sometimes less recent) source. Note that the names of certain groups used below may not be entirely consistent throughout the article to match the terminology used by our sources. For example, although Investopedia prefers the identifier “Latinx,” this article uses categories such as “Hispanic” to provide an accurate representation of how the study that we quote reported the information.

Size of Student Loan Debt by Race

According to a report from the Board of Governors of the Federal Reserve System (which compares Black, White, and Latinx borrowers to a large group labeled "Other"), Black borrowers took out the largest amount of federal student loan money in 2022. This amount averaged $53,430 per borrower. Although “Other” was technically the second highest at $51,810, the Fed includes several groups in this category: Asian, American Indian, Alaska Native, Native Hawaiian, Pacific Islander, other races, and those with more than one racial identity. This limits the categories' effectiveness in comparisons. White borrowers accounted for the second-largest amount for a single group. Finally, Hispanic borrowers took out the smallest amount on average, at $26,460.

This information is from the Fed's "Survey of Consumer Finances," which is conducted every three years. The most recent survey is from 2022. However, here are a few surprising points to note:

• When the Fed began recording this data in 1989, Black borrowers had the smallest amount of student loan money. They overtook all other categories (excluding “Other”) after 2010, with one dip in 2013.
• In 2019, the Institute on Assets and Social Policy found that the average Black borrower still owed 95% of their original loan amount after two decades, compared to White borrowers who, on average, have paid off most of their student debt.

The general trends are relatively similar to what the Fed reported when you look at the intersection of race and gender. Here’s what the American Association of University Women found:

• Black women had the largest average student loan debt, at $41,466.05.
• The next largest group was the Pacific Islanders/Hawaiian women at $38,747.44, then American Indian/Alaska Native women at $36,184.40, then White women at $33,851.98.
• Hispanic/Latina borrowers were the next highest group at $29,302.45.
• Asian women borrowers owed the lowest amounts.

Additional discrepancies can be seen in how loans are distributed, depending on both race and where the student studied. This is what the Student Borrower Protection Center reported (also visible in the above chart):

• Black/African American graduates across all types of institutions constituted the highest percentage of borrowers to finance higher education in 2020.
• Asian borrowers had the lowest percentages across all categories, meaning they were the most likely to graduate without any student loan debt.
• White borrowers had the second highest percentage in public two-year universities, the third highest in both public four-year and private nonprofit two-year universities, and the fourth highest in private nonprofit four-year universities.
• Percentages for both Hispanic/Latinx and American Indian/Alaska Native graduates were generally on the higher side, excluding public two-year institutions.

It’s also worth noting that, across all five groups, the percentages of borrowers for private nonprofit two-year universities were both the highest and had the least amount of difference among the groups.

Impact of Race on Student Loan Debt

It’s no secret that student loan debt is a major problem for most borrowers, regardless of their background. Looking at median income and student debt from 2009 to 2019, the Brookings Institution found an ever-widening gap between what people earn and what they owe for their education. While the difference has diminished over time for Asian borrowers, the gap has grown wider for Black borrowers.

Black Borrowers

Racial differences in family wealth exacerbate the debt issue for all students of color, but especially for Black borrowers. According to the Student Borrower Protection Center, Black students had less household wealth and took on more loans to finance their education in 2020 than other groups.

Additionally, a 2017 report from the Federal Reserve Bank of St. Louis found that postgraduate White households generally receive financial support from their family, whereas their Black counterparts instead contribute portions of their income to help their family.

These contributions limit the ability to build wealth. As a result, when these borrowers have children of their own who eventually enroll in college, the cycle often begins anew. Carrying larger amounts of student loan debt can also damage the creditworthiness of Black households. This also can impact future wealth-building, such as the ability to qualify for a mortgage and buy a house.

Latinx Borrowers

This population also faces financial difficulties as a result of their student loan debt. With educational costs rising and grant amounts shrinking, UnidosUS found that Latinx students and their families frequently chose to pay out of pocket and/or take out student loans to finance their education in 2019.

Despite attending college with lower incomes and less intergenerational wealth than their White counterparts, Latinx borrowers on average paid more to attend college than White borrowers. This is after accounting for differences in expected family contribution and grant aid, and not a simple comparison of tuition.

The Role of Private Student Loans

Further worsening the student debt crisis for borrowers of color are private student loans. Private loans can be useful to augment federal loans, which may not let students borrow enough to fund the cost of their school.

However, private loans lack many of the safeguards that federal student loans offer, which can protect a student from going into default due to economic hardship. As a result, private borrowers have fewer options should they fall behind on their payments.

What’s more, most federal loans don’t require a credit check and have a set interest rate. Private loans generally do require a credit check—and interest rates are based on the credit ratings of the borrowers and may require a co-signer. The racial wealth gap can result in private student loans costing more, as borrowers with lower credit scores may be charged higher interest rates. However, it should be noted that not everyone with low income has a low credit score, and not all racial minorities have a low income. Furthermore, there is a positive side to credit checks; in some instances, they can prevent people from borrowing what they will have trouble paying back.

According to the Student Borrower Protection Center, students of color (specifically Black and Latinx students) and low-income borrowers overall used private loans less often than White borrowers but were more likely to have trouble paying down their private loan debt. Black students, in particular, were four times as likely to have trouble repaying private debt compared to White students.

Additionally, private student loans are more often taken out by students attending for-profit institutions. A number of these institutions, including Corinthian Colleges and ITT Technical Institute, have been accused of fraud related to student loans. Many of these loans take the form of shadow debt, a largely unregulated market that often features high interest rates, misleading marketing, and risky underwriting. Since Black borrowers are overrepresented in for-profit institutions, they are also the most likely to fall victim to this form of predatory debt.

Differences in Repayment

Perhaps the greatest impact of discrepancies in student lending is how they affect each group’s ability to repay their debt. A 2023 economic brief by the Federal Reserve Bank of Richmond reported that 30% of Black college graduates defaulted on their federal student loans as opposed to 10% of their White counterparts.

Several factors may feed this discrepancy, including net worth at the beginning of the educational period. White families surveyed typically had positive assets while Black families started from a place of financial overextension. This overextension prompts the need for greater amounts of student loans from the start.

In 2019, the Center for American Progress broke down the differences in student loan default rates by race and institution type from two years prior. Loan default rates were lowest for borrowers who attended both public four-year and private nonprofit four-year universities, followed by public two-year institutions, and for-profit institutions had the highest default rate. White students had the lowest default rates across all categories.

Hispanic or Latinx borrowers had figures similar to their White counterparts, with the largest difference between the two groups being 7% for “All Institutions.” Black students had the highest default rates, with the largest being 42% for private for-profits.

As discussed previously, being unable to repay loans will cause graduates to lapse into delinquency and, eventually, default. The potentially devastating financial consequences disproportionately fall on Black communities, and difficulties in paying down debt cannot be attributed to income inequality alone.

According to Brookings, although there were quantifiable family income and wealth differences between Black borrowers and White borrowers in 2018, these accounted for roughly half of the default rate gap between these two groups. Even further controlling for differences in degree attainment, college grade point average, and post-college income and employment, this gap remains.

The author posited that differences in loan counseling or servicing may have been the cause of the remaining gap. In 2022, the Consumer Financial Protection Bureau (CFPB) found approximately 8,407 complaints from borrowers regarding both federal and private loans between Sept. 2021 and Aug. 2022, with the most common issues pertaining to dealing with a lender/servicer, struggling to repay loans, and problems with a credit report or score.

The CFPB also reported that predatory schools have targeted students of color, which results in lower future earnings, high debt balances, and high default rates.

Ultimately, differences in repayment rates are likely the result of all of the factors discussed throughout this piece, including the greater percentage of Black borrowers who also financially support their families and the greater proportion of White borrowers whose families help support them.

Information Gaps

Although there’s no doubt that student debt disproportionately affects borrowers of color, it’s difficult to determine the full scope of its effects. As mentioned previously, because much of the existing research focuses on Black and White borrowers, there is less information about how other racial and ethnic groups are affected.

For instance, while the Lumina Foundation was able to determine that Black, Hispanic, and Native American borrowers generally had higher unmet financial needs, incurred more student loan debt, and were more likely to struggle financially to stay in school in 2020, it didn’t specify whether this was also the case for Asian borrowers and Native Hawaiian/Pacific Islander borrowers.

In fact, Asian Americans are often excluded from these data sets as a separate race altogether, as is evident in the Fed’s findings on average student debt amounts and the Center for American Progress’ research on default rates by race. At least with the former, the Fed defined the “Other” category in supplemental materials to 2022 report to include Asian borrowers, but it’s unclear whether that’s also true for the latter’s “All borrowers” grouping, as that could be just the three groups already included in the chart.

The Bottom Line

Given the hefty financial burden that education debt places on most Americans, the government has provided some measure of student loan relief. The problem of student debt isn’t simple, and there is no silver-bullet solution to address the debt burden faced by students, including the particularly high burden faced by students of certain backgrounds. However, the assumption that hard work and a college degree are all that’s needed to be financially successful ignores the reality of today's economy as well as the differences in the family situation, upbringing, and economic background of students.