Summary: We ask to what extent student debt and Expected Family Contribution (EFC) financial aid formulas are associated with race and household wealth.
Data
- BPS
- FHFA Cenus Tract Home Values
- BPS GIS
- BPS Federal Student Aid Supplement
Black students have taken on meaningfully larger student debts than whites over the last two decades. Black borrowers have also repaid their debts at lower rates. Much of these two inequalities stems from the racial wealth gap (Huelsman et al. 2015; Oliver and Shapiro 20016). On average, the parents of Black students have less household wealth to assist their children in paying for college or repaying loans after college (Addo, Houle, and Simon 2016). Household wealth, however, is mostly excluded from the U.S. Department of Education’s “Expected Family Contribution” (EFC) formula for awarding Pell Grant awards and lower-interest rate subsidized federal student loans. State governments and postsecondary schools also use EFC or a variation of it to award state and institutional aid grants in place of student loan borrowing. Latinx and Asian students tend to borrow at rates comparable to whites, perhaps because of cultural attunement to risks associated with debt. Exclusion of wealth from EFC formulas may nevertheless bias EFC derived grant aid awards against Latinx students because of lower average household wealth than whites and against Asians because of a lower or more disparate (i.e. bimodal) distribution of wealth among Asians than among whites. Low household wealth may also inhibit the ability of Latinx and Asian borrowers to repay their debt after school. Net of students’ household income, EFC determinations and other controls, we therefore ask to what extent student loan repayment, student loan borrowing, and financial aid awards are associated with: 1) race, 2) household wealth, and 3) race after controlling for household wealth. We also will estimate the relationship between student loan borrowing and EFC determinations. These estimates will be used to estimate how much EFC would need to be adjusted to close wealth related disparities in student loan borrowing. These estimates would also be used to predict how much borrowing would be reduced by race from EFC adjustments according to wealth.
Preanalysis plan: https://osf.io/48m6j