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Student Loan Paradox: Small Loan Balances are More Likely to Be Delinquent

Dec 01, 2015

The debate over the nation's ballooning student debt often spotlights borrowers with disproportionally high loan balances. A New York Times story on Monday, for instance, profiled a woman who owes the federal government a staggering $410,000 in debt. But a new report out Tuesday from the Washington Center for Equitable Growth shows in stark visuals that the student loan "crisis"—or loan delinquencies—is playing out among students who borrowed relatively little.

The organization mapped student loan balances and loan delinquency. Once plotted out by zip code, it's clear that there is an inverse relationship at play: where balances are high, delinquency is low, and vice versa. The center also took into account median income and found that high balances correspond with high income while areas of high delinquency overlap with areas with low median income.

geography of student loans

The concentration of debt delinquency in zip codes with low average loan balances is partly coming from students who borrow money to attend for-profit colleges. Graduates of for-profit colleges often face poor employment outcomes and lower earnings after they complete their degrees. "This is further complicated by the fact that these for-profit college attendees generally come from lower-income families who may not be able to help with loan repayments," the center says.

The Washington Center attributed the high density of delinquency in low-income areas to "redlining"—or the illegal practice of restricting access to credit for residents of low income and minority neighborhoods. Americans who don't have access to loans through "competitive, transparent financial networks" are more likely to rely on exploitative credit arrangements. "That disadvantage interacts with and is magnified by their lack of labor market opportunities," the study says. "The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets."

The maps indicate that loan delinquency is closely tied to overall economic opportunity rather than the grand total of debt a student assumes.

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