When we talk about student loans, we tend to discuss them in broad terms. For instance, the overall student loan debt in America last year surpassed $1 trillion and the bulk of this ($864 billion) is federal debt and the remaining $150 billion is owed to private lenders. Next, we focus on the rising average student loan balance that’s now near $27,000. But one aspect we rarely consider is how this debt load affects certain groups differently – specifically women and minorities.
Despite women continually pushing up against the glass ceiling and some employers striving proactively toward affirmative action hiring, there is still a great inequality in earnings between men and women and between whites and minorities. But what do post-grad earnings have to do with student loans? Plenty!
If you owe me $70 a week and earn $280 a week, I’m taking one-fourth of your pay. But if you earn $700 a week, I’m taking only one-tenth of your pay. Dollar for dollar, the debt is the same but is proportionately more affordable when you’re raking in bigger bucks. And statistically, for women and minorities, the wage disparity that permeates our economy makes paying student loans more of a challenge. How much more? Let’s take a look…
The government’s Institute of Education Sciences most recently compiled data (covering 1995-2010) clearly demonstrates the earnings differences between these groups. We’ll look at these wages compared to student loan debt, and to be fair, we’ve substituted the slightly lower average student loan balance of $24,000 that was in effect in 2010. This $24,000 student loan balance would result in a $276 monthly payment under the standard 10 year repayment plan at 6.8% interest.
Here are the average salary facts as of 2010:
All wage earners (aggregate of all sexes and ethnicities) with Bachelor’s degrees averaged a salary of $45,000.
This average salary would equate to roughly $3,000 monthly take home pay.
The $276 student loan payment equates to 9.2% of take home pay.
Now let’s consider male versus female wages as of 2010:
Now let’s consider white versus black wage earners as of 2010:
Another study that examined lifelong wage disparity between men and women clearly shows that the wage differences grow as tenure progresses. With student loans now lingering for increasingly longer periods of time, the student loan payment as a percent of pay will diminish more rapidly for males and Caucasians and they should be able to pay off their student loans faster.
There are some mitigating factors that explain a part of the pay gap between women and men – for instance women choosing careers in education and other high-impact, but lower wage earning industries. Men are more likely to choose higher earning majors such as engineering and computer science.
But a recent paper “Graduating to a Pay Gap,” found that wage disparity exists even in the same career fields. The study authors believe this clearly indicates gender bias in compensation. They also cite a rising number of EEOC claims, legal fees and out of court settlements related to discrimination that further support their assertion of wage inequities.
Unfortunately, there seems to be a lack of recent studies on the income disparities among ethnicities with college degrees, but we did find one from 2004 that had some interesting results. Published by The Journal of Blacks in Higher Education, their data showed that black women with Bachelor’s degrees actually out earned white women with degrees by 11% on average. But the gap was disturbingly wide among males. Black men with Bachelor’s degrees earned just 79% of their white counterparts’ wages.
Turning this back to student loans, this means that overall, women are harder hit proportionately by student loan debt than men and that black men are likely the hardest hit by student loans of the groups compared in these studies. So what’s the solution to help women and minorities struggling with disproportionate student loan debt?
Foremost, employers should pay performance-based wages that are color and gender blind. If you know (or suspect) you’re not being compensated on par with your co-workers of similar education, experience and tenure, it may be time to ask for a raise. MoneyCrashers.com offers this advice: “You’ll never know if you can get a raise unless you ask, so don’t miss out on an important opportunity that can help your finances and career goals if you know you deserve it.”
Second, we recommend changes to student loan payment methodologies across the board. President Obama has proposed that grads shouldn’t have to devote more than 10% of their income to service student loans and wants the forgiveness period to cap at 20 rather than 25 years. That’s a good start. We also like the repayment model in use in Australia where it ties repayment to income. And before student loans ever become a factor in life, we would like to see a world where educators and parents teach children money lessons that will inform their decisions about taking on debt!
Many repayment plans have been proposed that would address the student loan crisis and its effects on debtors of all ages – but until legislators act, the proposals are just notions. If you owe student loans and want to see what repayment options are available to you, try Tuition.io’s free student loan tool. You can view your student loan balances, check pay off dates and see how different repayment plans would impact your monthly cash flow.
Also check out these other recent blogs on related topics: