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“It’s not the amount I borrowed that’s killing me – it’s the interest.”

Students all over the country echo that sentiment. And new research shows the problem is worsening.

To make a real dent in the amount you owe on a loan,you need to pay enough money each month to cover both the interest and part of the principal (the amount you actually borrowed). Otherwise the interest builds, and you end up owing much more than what you borrowed in the first place.

That’s what’s been happening to young student loan borrowers over the past decade, and the trend has been hitting young people of color the hardest.

In 2019, a stunning 62 percent of 18- to 35-year-old borrowers living in ZIP codes that were “majority minority,” meaning where the majority of residents were people of color, owed more than they originally borrowed, up from 34 percent ten years earlier, according to research published in November by Marshall Steinbaum, a senior fellow at the Jain Family Institute.

“But it’s not that people just lack the money today to repay the loans, it’s that they’ll never have enough money.”

Marshall Steinbaum, senior fellow, Jain Family Institute

What’s driving that spike is the interest, which builds up year after year. Too many borrowers just don’t have the means to get ahead of their debt.

Part of the reason, Steinbaum argues, is a policy meant to help students cope with their increasing debt loads.

In 2007, Congress introduced a new version of income-driven repayment plans (known as IDRs), which allowed student borrowers to pay a small amount each month as a proportion of what they were earning. Students could pay $20 a month, or even nothing if they were really strapped. The idea was to help students who weren’t making much money in the early part of their careers. More students turned to the program in the wake of the devastating 2008 economic crash.

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One-third of Black borrowers in repayment in 2017 with a bachelor’s degree were using these payment plans – a much higher rate than those of other borrowers, according to a report from the Center for American Progress.

Students were encouraged to enroll in the program, with the assumption that when the economy recovered, borrowers would get decent jobs and could start paying more each month. But that didn’t happen.

“The premise of IDR is that individuals just need a few years of reduced payment until they can start paying more,” said Steinbaum, who is also an assistant professor at the University of Utah.

“But it’s not that people just lack the money today to repay the loans, it’s that they’ll never have enough money.”

The policy does seem to have saved some people from default, by reducing the amount required in the monthly payments. Although the three-year default rate was still extremely high at 9.7 percent in 2017, it’s down from 14.7 percent in 2010.

But again, many Black borrowers didn’t reap the same benefits as their peers. Half of Black borrowers who first entered college in the 2003 defaulted on their student loans within 12 years; the comparable figure for white students is 21 percent.

The racial disparity comes from the gap in wealth between Black and Latino and white families as well as discrimination in hiring, Steinbaum said, and discrimination in higher education.

In 2019, 62 percent of 18- to 35-year-old borrowers living in ZIP codes that were “majority minority,” meaning where the majority of residents were people of color, owed more than they originally borrowed, up from 34 percent 10 years earlier, according to research by the Jain Family Institute

“Higher education segregation is specifically why Black borrowers have so much more debt,” he said. “Through segregation, Black students are channeled into institutions that are poorly resourced and are more dependent on their own students to sustain themselves.”

Colleges with less state funding and lower endowments don’t have as much financial aid to offer students who need it most, driving debt levels even higher. Many also have lower graduation rates. Students who don’t earn a degree are left without the credential they need to find a well-paying job. Without a decent income, their monthly loan payments stay low, and the interest builds.

A recent report by the New York City Department of Consumer Affairs found that the five colleges with the highest percentage of Black students had some of the worst repayment rates in the city.

Related: The universities that enroll more poor students have less financial aid to give

Steinbaum’s findings are in line with what other researchers have found. Young adults who have to borrow money to go to college are under water, in sharp contrast to their parents’ generation, according to a report by Young Invincibles, an advocacy and policy group.

In 1989, 25- to 34-year-old college graduates with student loans had a median net wealth of about $90,000. In 2016, the net worth of young adults with the same debt status was negative $1,900.

Kyle Southern, the higher education and workforce policy and advocacy director at Young Invincibles, argues that specific policy decisions, such as tax cuts and decreases in higher education funding, that explains the high debt levels and low wealth of Millennials.

“You need to have a college degree to get a good job, but you can rely less and less on your state to keep down the cost of an education,” he said. “It’s an economy that’s failing young people and leaves them facing negative wealth at start of their careers.”

Steinbaum thinks that the debate in Washington over cancelling student debt is missing a key point. After 20 or 25 years of payment, depending on which income-based repayment plan a student has, the unpaid portion of the debt is forgiven, or in other words, cancelled.

If the incoming Biden Administration passes some form of debt cancellation, it could help alleviate the current crisis. But without a fundamental shift in higher education policy, both Southern and Steinbaum say, the next generation of college students will be in the same position as indebted young adults are now.

This story about income-based loan repayment was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for our higher education newsletter.

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