By: Meghan Clancy
Using nationwide panel data, a new Federal Reserve Bank of New York study suggests that the racial composition of your zip code may be a proxy determinant for students’ college attendance behaviors, loan borrowing patterns, and the debt that results. In their study, they defined the racial “majority” of zip codes as ones where at least 50 percent of the adult population, who also have a credit report, self-identified as white, Black, or Hispanic. Among the report’s findings:
College attendance behaviors:
- Overall college attendance rates are highest in majority-white neighborhoods followed by majority Black and majority non-Black Hispanic areas respectively.
- While majority Hispanic neighborhoods, overall, attend college at slightly lower rates, they are more likely to attend two-year colleges than individuals from majority white or Black zip codes.
- Individuals from majority Black areas are 15 percentage points more likely to attend a four-year college than those in majority Hispanic areas.
These trends fluctuate depending on the availability of colleges and universities in the immediate area. For instance, in New York City there is a higher attendance rate across race and zip code due to the increased presence of four-year institutions while in Los Angeles there is a higher rate of attendance in all categories for two-year institutions.
Student loan behaviors:
- College goers that live in majority-Black neighborhoods are more likely to borrow than their peers living in either majority white or Hispanic zip codes leaving them 9 percent more likely to be carrying a student loan by age 30.
- Individuals living in predominantly white or Hispanic neighborhoods, attending either a two or four-year college, borrow at similar rates except that Hispanic students attending two-year institutions borrow at slightly lower rates.
Student debt and default:
- College attendees from predominantly Black neighborhoods are carrying significantly higher debt than those from predominantly Hispanic neighborhoods who in turn carry slightly higher debt than their counterparts in majority-white zip codes.
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- Borrowers from all three types of neighborhoods who attended four-year colleges, on average, have higher debt balances at age 30 than their counterparts who attended two-year institutions.
- Students who attend two-year colleges are less likely to borrow but more likely to default when they do.
- By age 30, all two-year college-goers have higher default rates regardless of racial composition of their zip code with two-year attendees defaulting 50 percent more than their four-year counterparts.
- Among two-year defaulters, those from majority Black and Hispanic areas are 1.9 and 1.7 times more likely to default than their peers from predominantly white zip codes respectively. The study revealed similar default patterns for those attending four-year institutions.
