Student Lending: Wall Street’s Next Bubble?

If it is, it will -- surprise, surprise -- disproportionately affect black people.

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For proprietary schools, the student-loan default rate as of September 2010 was 11.6 percent, up from 11 percent the year before. Low graduation rates, high tuition costs and training in fields that are in lower demand are among the reasons people attending these schools can’t meet their obligations, according to Moody’s.

Minority Groups Most at Risk

With unemployment at a staggering rate of 15.9 percent for African Americans (the national unemployment rate hovers at around 9 percent), the bursting of a bubble in student lending could be especially hard on the black community.

A 2010 study by the College Board Advocacy & Policy Center (pdf) found that student-loan debt levels of $30,500 or higher were more common among black bachelor’s degree recipients (27 percent) than among their white (16 percent), Latino (14 percent) or Asian (9 percent) counterparts.

Plus, “More black students have student loans and have higher unemployment rates, so the debt level is more consequential,” said political economist Dr. Jessica Gordon Nembhard in an email. Nembhard is an associate professor of community justice and social economic development in the department of African-American studies at John Jay College in New York City. “With the increase in the economic downturn, black unemployment levels will stay high or get worse.”

That reality drives Winston, who already owes $15,000 in loans, to do what she can while still in college to help secure future employment.

“I’ve done internships, I’m vice president of Temple University’s Black Public Relations Society, a member of the Philadelphia Black Public Relations Society. I’ve been involved with the working class outside of campus,” she said. “People know who I am. I’m establishing relationships now that will hopefully carry me into my first job.”

And that’s important because by the time Winston, 19, of the Bronx, N.Y., completes her degree in public relations, she expects to be at least $20,000 in the hole. And her loans are not her only expenses — she must also pay for housing. Winston holds a part-time job during the school year while taking a full load of classes and maintaining her involvement in the public relations organizations.

“I’m used to little sleep,” Winston said.

Which Careers Are in Demand?

Black, 19, of Queens, N.Y., does not want to lose sleep thinking about future debt, so she wants to tackle her student loans now.

“During undergrad, I want to start paying it off,” said Black, who owes about $18,000 in loans as she begins her junior year in September. “I’m trying to find a job now, but I have been looking since May and have come up short.”