Department of Consumer and Worker Protection (DCWP) Commissioner Lorelei Salas today announced the release of “Upwardly Immobile: Low-Income Borrowers and the High Cost of College Education.” While a college degree can aid in income mobility, the brief demonstrates that a sizable gap in affordability—and, therefore, accessibility—exists in New York City between student borrowers from low-income families and those from higher-income families, a pattern that aligns with national-level findings.
Previous DCWP research found that rates of student loan default are higher in low-income neighborhoods so DCWP has examined the group closer. This report reveals NYC student loan borrowers from families with low incomes often borrow more while in college and take longer to repay, accruing more interest along the way. They are further hindered by lower completion rates, lower earnings, and lower loan repayment rates compared to students from families with greater wealth. Perpetual financial struggle results from the high cost of trying to access a college education on a low income.
“We began writing this brief before the pandemic, before many New Yorkers were faced with unprecedented job and income loss. Vulnerable before the pandemic, student loan borrowers with low incomes face even greater challenges now and need the federal government to step up and provide real relief,” said DCWP Commissioner Lorelei Salas. “Federal student loan payments are scheduled to resume at the end of this month and we encourage all borrowers with a loss or change in income to enroll in an Income-Driven Repayment Plan, which typically offer more affordable payments. If you need help understanding your options, make a confidential appointment with a financial counselor at nyc.gov/TalkMoney or call 311.”
- Unmet Need Leads to Higher Borrowing
Across New York City, higher borrowing among low-income students occurs at 39 percent of institutions. This phenomenon occurs at 9 percent of public schools, 27 percent of for-profit schools, 76 percent at non-profit schools.
- Lower Completion Rates
Although higher education is often billed as the “great equalizer,” research shows that disadvantaged groups, such as low-income students and students of color, are less likely to reap the economic rewards of enrolling in college because they are at a higher risk of not finishing. Across New York City, approximately two-thirds of institutions have lower graduation rates for borrowers from lower income backgrounds than compared to student borrowers from higher income backgrounds.
- Lower Earnings
The much-hyped “college earnings premium” has led educators and policymakers to promote college-going as a guaranteed path to financial stability. Overlooked in this hype is the fact that the college earnings premium is lower for low-income individuals. Citywide, at over 88 percent of higher education institutions, attendees from low-income families had a lower median income 10 years after starting their program than their higher-income peers.
- Lower Loan Repayment Rates
When students borrow to fund their higher education, they do so with the expectation that they will earn enough money to repay the debt they accrue along the way. Unsurprisingly, given the disparities in completion, earnings, and borrowing, a repayment gap exists between low- and higher-income student borrowers. Fewer than half of borrowers from low income backgrounds, 49 percent, were able to pay even a dollar towards their principal seven years into repayment, compared to 74 percent of borrowers from higher income families who were able to reduce their principal.
Student loan debt has traditionally been referred to as good debt. This designation is quickly becoming a misnomer, as debt burdens have climbed and wage growth has slumped.
The City has already taken steps to address disparities. To ensure more students are prepared to attend higher-quality postsecondary schools, Mayor Bill de Blasio and the NYC Department of Education (DOE) launched Equity and Excellence for All and Diversity in Admissions, to ensure our school system better reflects the diversity of New York City.
New Yorkers’ financial health is of particular concern for DCWP’s Office of Financial Empowerment. When it comes to higher education, DCWP wants residents to have the ability to pursue an affordable degree, graduate, and become gainfully employed at a comfortable salary—without student loan debt stress. The report is the final in a series of three reports about communities who are most vulnerable to student loan debt and/or are vulnerable to predatory targeting by for-profit schools – DCWP’s first report on veterans and for-profit schools and second report on Black borrowers were issued last year.
To help student loan borrowers understand how they may be affected by pandemic relief, DCWP created Important Information for Student Loan Holders: Automatic Payment Suspension and Other Relief During CoViD-19 . Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, federal student loan payments were suspended, without interest or penalties, until January 31, 2021. Payments on federal student loans are currently scheduled to automatically restart on February 1, 2021. If your financial situation has changed and/or you are unable to afford your payments, DCWP encourages you to visit an NYC Financial Empowerment Center to discuss your options. Counselors can help navigate information on and applications to Income-Based Repayment Plans, which tend to offer payments that are more affordable than the standard repayment plan.
Any New Yorker who needs help navigating loan repayment options, is struggling with debt, or is planning to take out future student loans can make an appointment for free, one-on-one financial counseling by phone with one of DCWP’s Financial Empowerment Centers throughout all five boroughs. To make an appointment for financial counseling or to download tips about student loans, visit nyc.gov/StudentLoans. DCWP also encourages New Yorkers to #TalkStudentLoans on social media on Twitter, Facebook and Instagram.
About Department of Consumer and Worker Protection
NYC Department of Consumer and Worker Protection (DCWP) protects and enhances the daily economic lives of New Yorkers to create thriving communities. DCWP licenses more than 75,000 businesses in more than 50 industries and enforces key consumer protection, licensing, and workplace laws that apply to countless more. By supporting businesses through equitable enforcement and access to resources and, by helping to resolve complaints, DCWP protects the marketplace from predatory practices and strives to create a culture of compliance. Through its community outreach and the work of its offices of Financial Empowerment and Labor Policy & Standards, DCWP empowers consumers and working families by providing the tools and resources they need to be educated consumers and to achieve financial health and work-life balance. DCWP also conducts research and advocates for public policy that furthers its work to support New York City’s communities.