When Default is the Default

Look to your left. Now look to your right. If both people you looked at are black millennials, one of them has almost definitely went into default on their student loans.

By now, you know the most popular stats: 44 million people owe $1.5 trillion in student debt. The average amount owed is $25K for undergrad degrees and $45K for graduate degrees. And some argue millennials are postponing major life events — buying a home, marriage, having kids — because four years of higher education now costs a small mortgage.

We hear a lot about who gets saddled with debt. We don’t always hear about the patterns surrounding who can successfully pay it back.

Student Loan Hero examined data from the National Center for Education Statistics and learned that, black and hispanic students graduate with higher amounts of student debt and earn among the lowest median salaries in their post college years. Of the black students polled who started college in 2003, their loan balance ballooned to 113% of the original price 12 years later. Nearly one-in-two had defaulted on their loans.

Other polls like the one conducted by the Brookings Institute have this number at 38%, or more than a third. Pick any college classroom in America and one out of every three black kids in that class will go into default for trying to better their circumstances. Maybe even half.

Do these numbers have to do with the jaw-dropping chasm between white and black wealth in the U.S.? That says (on average) for every $5 in wealth a black family has, a white family has $100? Tough to say.

“Why do you care so much,” you’re probably wondering by now. “Do you have a bone to pick or something?” Well, as you can probably guess from my melanin and my passionate loathing of debt, I am the nearly 1-in-2. I spent years in default. How I found out? At the Apple Store, trying to finance the latest iPhone on monthly payments (and being denied, obviously). So yeah. I’m a little salty.

Going into default means a lot more than not being able to give Apple $45-a-month for the rest of your life for mostly-the-same phones. The entire amount becomes due immediately (both principal balance and interest accrued), the government keeps your tax refund for themselves and may even garnish your wages too. It also tanks your credit score and stays on your credit report for seven to 10 years, which may make it harder to rent an apartment, get a car or finance the new iPhone X Plus Max Deluxe Ultra.

That’s just on the individual level. Zoom out and you’ll see the larger consequences: “While millennials aged 18-34 in all race and ethnic groups have experienced a drop in home-ownership since 2005,” an Urban Institute study says, “the black home-ownership rate has been continuously lower than all groups and has dropped further than the other groups since 2000.” Yikes.

So how did you get out of default?

A lot advice on the internet will you tell you to cut out the coffee as a way to get ahead financially. As someone who doesn’t drink coffee at all, surprisingly I am not filthy rich yet. Here’s what worked for me instead.

Most of my early student loan neglect came from being in a place where I didn’t make enough money to live my life and also pay loan minimums. “So why even look at it,” my (terrible) line of thinking went. Here’s how you can be better than me:

1) Pay attention to all the bills rolling in.
2) Pay the minimums required.

That’s it.

You may need to call your loan servicers and ask about their rehabilitation program if you’ve already landed in default. You’ll also need to, and this is the hard part, make more money to be in a place where you can afford life and the minimums. If you can’t, you may be able to call your loan provider and see if there’s an agreement you can come to that will let you pay less each month. Just know that this means you’ll be paying back your loans for even longer. Even if you can’t afford to meaningfully pay off the full balance anytime soon, making the small required payments means you might be able to avoid paying a greater price in the long run.

(This post is part of the What I’ve Learned series, cataloging tips and tricks I’ve picked up since I’ve gotten aggressive about paying off my student debt. I am not a certified financial planner nor some kind of money professional — do other research too!)