Center for American Progress

Students of Color Are Especially Vulnerable to Interest Rate Hikes
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Students of Color Are Especially Vulnerable to Interest Rate Hikes

Given that students of color are more likely to rely on financial aid to finance their college education and graduate with higher student debt, increasing these interest rates would disproportionately impact them.

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On July 1 the interest rate on federally subsidized Stafford Loans will double from 3.4 percent to 6.8 percent if Congress doesn’t act. Though this rate hike will have devastating consequences on more than 7 million students nationwide who currently hold a Stafford Loan, change will hit students of color especially hard.

Students of color are more likely to depend on financial aid to attend college and have higher trends of student debt. African American students in particular are graduating with much more debt than white students. A 2010 study by the College Board Advocacy & Policy Center found that student loan debt levels of $30,500 or higher were more common among 27 percent of black bachelor’s degree recipients compared to 16 percent of their white counterparts.

Deferments and forbearances often provide short-term debt relief, but the interest on the loans may accrue and capitalize during the forbearance or deferment period, making the loans more expensive in the long term.

Given that students of color are more likely to rely on financial aid to finance their college education and graduate with higher student debt, increasing these interest rates would disproportionately impact them. We need to focus on making college more affordable, particularly at a time when students need a good education to be competitive in the international economy.

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