CFPB’s Report On Student Loans By Neighborhood Income Level

A report on student loans by the Consumer Finance Protection Bureau seems to indicate higher income families are taking greater advantage of student loans than low-income families.

The old saying “the rich get richer” probably isn’t one you’d expect to apply to a program designed to level the playing field. But when it comes to the student loan market, the saying proves to be rather true.

In all fairness, we recognize there are other factors involved: low-income families are less likely to send their children to college; low-income families are eligible for more grant money and might be less reliant on student loans; low-income families lack the credit history to qualify for student loans.

So let’s just look over the raw numbers and see what they show. Though first, we’ll explain how CFPB came up with the numbers.

How CFPB Analyzed Student Loans by Neighborhood

In the CFPB’s report on student loans is able to analyze student loan data that has been de-identified, so it cannot compare student loans directly by income. It does, however, have access to the student or parent addresses, so it can group loans by neighborhoods.

For this study, CFPB broke down the data by the following criteria, based on the median family income in the neighborhood where the consumer resides:

  • Low income: relative income less than 50 percent of the national median
  • Moderate income: relative income 50 percent to less than 80 percent of the national median
  • Middle income: relative income 80 percent to less than 120 percent of the national median
  • Upper income: relative income 120 percent or higher than the national median

Student Loan Volume by Neighborhoods

In the report on student loans, CFPB analyzed data beginning in 2009, so for the purposes of this blog, we are focusing on student loan numbers for 2009, during the height of the great recession; 2013, when the recovery was hitting full swing and student loans dropped across the board; 2017, the latest year data was available.

The seasonally adjusted total volume of loans for 2009 from the lowest to highest months:

  • Low income: 485 million-714 million
  • Moderate income: 1.82 billion-2.66 billion
  • Middle income: 3.89 billion-5.67 billion
  • High income: 3.05 billion-4.05 billion

That indicates a little over 5 percent of all student loans going to low-income families, as compared to about 20 percent going to moderate income, just over 40 percent going to middle income and just over 30 percent to high income.

The numbers remain consistent through the dip in student loan volume during the recovery in 2013:

  • Low income: 367 million-646 million
  • Moderate income: 1.62 billion-2.12 billion
  • Middle income: 3.45 billion-4.51 billion
  • High income: 2.64 billion-3.41 billion

The swing here for low income is a little greater, but still balances out to about 5 percent, compared again to about 20 percent for moderate income, just over 40 percent for middle income and a little over 30 percent for high income.

Though loan volume swung back up a little by 2017, the spread remained similar:

  • Low income: 451 million-597 million
  • Moderate income: 1.91 billion-2.22 billion
  • Middle income: 4.34 billion-4.95 billion
  • High income: 3.44 billion-3.95 billion

If anything, the change in percentages shows low income slipping a little below 5 percent while high income ticks up over 33 percent, where it had hovered about 31-32 percent in previous years. Moderate income also dipped a little below 20 percent while middle income held steady around 42 percent.

Year-Over-Year Student Loan Comparison

A year-over-year comparison of student loans issued by neighborhood shows a pretty consistent trend over the past five years.

Across the board, students borrowed less in the 2013-14 school year, more in 2014-15, less in 2015-16, more in 2016-17 and again less in 2017-18. The only noticeable difference across the income groups is the monthly spikes in new loans were more extreme from the low income group right up through the high income group, which showed more moderate changes in rising and falling loan rates.

More Low-Income College Students

A recent Pew Center study found more students from families considered in poverty are attending college, but at less selective colleges and universities, which means they are paying less for their education.

The study found 20 percent of all students at higher education institutions in 2016 came from households considered in poverty, up from 12 percent in 1996.

Pew also found that 38 percent of students from poverty households in 2016 were relying on student loans to pay their way, up from 33 percent in 1996. Interestingly, 30 percent of students from higher income households were borrowing to pay for their education in 2016, up from 8 percent in 1996.

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