Higher education can contribute to upward mobility, with median earnings for college graduates being approximately 84% higher than their peers with a high school diploma in 2022. Unfortunately, expenses add up for many students. In Q3 2023, outstanding student loan debt in the United States totaled $1.63 trillion. Student debt tends to weigh heavily on members of racial and ethnic minority groups, a disparity known as the racial wealth gap.

What Is the Racial Wealth Gap?

Economists commonly cite a substantial disparity in net worth between White households and those of racial and ethnic minority groups in the U.S. This is known as the racial wealth gap.

In 2022, at $108,700, Asian households had the highest median income. Non-Hispanic Whites earned $81,060, followed by Hispanics with $62,800. At $52,860, Black households had the lowest median income. Real estate ownership in Q2 2023 for White Americans was valued at approximately $33 trillion, while all other racial and ethnic group holdings totaled less than $11.5 trillion.

The College Borrowing Gap

Given the differences in wealth and income, Black students are significantly more likely to borrow for higher education than their White peers. A 2022 Federal Reserve report found that around 44% and 53% of Black men and women, respectively, ages 20–35 take out student loan debt, compared to 41% and 46% percent of White men and women within the same age range.

According to another 2022 report from the Fed, Black and Hispanic students who take out loans are more likely than White students to have difficulty repaying them. The report found that among borrowers under age 40, 17% of Black borrowers had fallen behind in their loan payments, compared with 18% of Hispanic borrowers and 9% of White borrowers.

Factors That Widen the Gap

Graduation Rates

Black and Hispanic students who start college are significantly less likely than their White counterparts to finish, according to a 2019 report from the National Center for Education Statistics. It found that 64% of White students at bachelor’s degree-granting institutions graduated within six years, compared with 54% of Hispanic students and 40% of Black students. Asian American students had the highest graduation rates, at 74%, after six years.

Students who can check the box for “some college” on their job applications but don’t hold a degree fare better in the labor market than their peers who stopped with a high school diploma. According to 2022 data from the Bureau of Labor Statistics (BLS), workers ages 25 and older with some college had median weekly earnings of $935, compared with $853 for workers with only a high school diploma. Bachelor’s degree graduates had median weekly earnings of $1,432.

Type of School

Students who attend for-profit colleges are considerably more likely to fall behind on their loan payments. For adults ages 18–39 who borrowed to pay for their education, the Federal Reserve found that three out of ten borrowers who attended private for-profit colleges were behind, compared with just 11% who attended public colleges and 7% who attended private not-for-profit colleges in 2022–2023.

Studies have shown that many employers believe for-profit degrees are of less value than degrees from public or private not-for-profit schools. As of fall 2021, Black students accounted for 27% of all undergraduates at for-profit four-year institutions, while Hispanic students represented 19%.

For-profit schools were found to mislead students with false promises while encouraging them to take out federal loans. In March 2021, the U.S. Department of Education made it easier for students in such cases to use federal “borrower defense to repayment” or “borrower defense” laws to seek to have their federal loan debt canceled.

Salary vs. Degree

Careers in STEM, or Science, Technology, Engineering, and Mathematics, are expected to grow nearly 11% from 2022–2032, according to the U.S. Bureau of Labor Statistics. In 2021, 24% of the U.S. workforce were employed in STEM occupations. Hispanic workers represented 15% of the STEM workforce, while Black workers accounted for just 9%.

The Impact of Student Debt

Student debt can affect anyone of any race for many years. In 2022, 30% of all adults took out student loans for their education. In a survey, 8% were behind on their payments, 43% had outstanding debt and were current on their payments, and half of the respondents had paid off their loans.

A 2023 Nationwide Retirement Institute survey found that 29% of respondents said they plan to adjust their retirement savings contributions to accommodate their student loan payments. 59% considered side gigs to earn the income to pay their student loans without impacting their retirement contributions.

The Bottom Line

For those who go on to well-paying careers, student debt may prove to be a good investment; however, the debt only exacerbates the wealth gap for students who fail to graduate or who graduate with low-value degrees. As of Q3 2023, over 43 million student borrowers in the U.S. held $1.63 trillion in outstanding loans.