The NYC Department of Consumer Affairs (DCA) Office of Financial Empowerment (OFE) today announced the findings of their second student loan report titled Student Loan Debt Distress Across NYC Neighborhoods: Identifying Indicators of Vulnerability.The report identifies and examines seven factors that are associated with student loan default among New Yorkers, while also highlighting trends across New York City neighborhoods. The seven factors that increase vulnerability to student loan default include: non-completion, part-time attendance, attendance at a for-profit institution, independent student status, low income, and being black or Hispanic.
This new report is a follow-up to DCA’s previous research report,a collaboration between OFE and the Federal Reserve Bank of New York. Released in 2017, the report was the first neighborhood-level examination of student loan outcomes. The report found that although New Yorkers’ delinquency and default rates are slightly lower than the national average, parts of New York City are experiencing significantly higher rates of delinquency and default despite the fact that residents have lower average loan balances. These higher levels of student loan debt distress also tend to be among older borrowers and those in lower-income neighborhoods.
DCA’s new report attempts to explain why the burden of student loan debt is shared unevenly across New York City as highlighted in the 2017 report. The new report found that neighborhood areas ranking highest in student loan debt distress also tend to rank high on multiple indicators of vulnerability – demonstrating a correlation between these risk factors and student loan debt distress. The report also identifies non-completion and attendance at a for-profit institution as two factors of particular concern to DCA. These factors were found at higher rates among independent students, students with low incomes, and among black and Hispanic students.
“This report provides even more insight into the state of student loan borrowers in New York City – including what factors contribute to default,” said DCA Commissioner Lorelei Salas. “We cannot sit by as our students continue to fall victim to the cycle of student loan debt plaguing our country. By understanding factors associated with student loan debt default, we can now look to develop innovative solutions to help those who are most vulnerable so we can ensure that New Yorkers do not continue to be entrapped by student loan debt.”
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Key report findings include:
- The report identifies seven indicators of vulnerability to default that provide context about student loan distress in New York City and can be used to target services.
DCA found that areas with high levels of debt in collections also tend to have high occurrence of the vulnerability indicators. These neighborhood-level indicators include non-completion, part-time attendance, attendance at a for-profit, age, low income, black residents, and Hispanic residents.
- Student loan debt distress is particularly severe in The Bronx.
DCA’s report finds that The Bronx has the highest rate of non-completion in the city, 42 percent, compared to Staten Island, the lowest at 31 percent. Less than half of students living in The Bronx who began their studies in the 2010 school year had completed a degree in 2017, seven years later. In addition to this, The Bronx has the highest rate of New Yorkers with student loan debt in collections and has the highest rate of students attending for-profit institutions. This report demonstrates a strong need to promote affordable options such as community colleges in The Bronx and other parts of New York City as an alternative to for-profit schools to help the most at-risk students avoid student loan debt distress before they even enroll.
- Non-completion is one of the strongest drivers of loan default in New York City.
Research has shown that non-completion is one of the strongest drivers of student loan default and that non-completion is more concentrated among students with low incomes and students of color. In addition to finding a strong relationship between student loan holders with debt in collections and non-completion, DCA’s report found strong relationships between non-completion and the other six indicators known to be predictive of student loan default – especially attendance at for-profit schools. Neighborhoods in The Bronx exhibit the strongest associations between rates of non-completion and rates of student loan debt in collections, with similar patterns seen in the Brooklyn neighborhoods of Bedford-Stuyvesant, Brownsville, Ocean Hill, East New York, and Starrett City, and the Manhattan neighborhoods of East Harlem and Central Harlem. Innovative solutions are needed to help these vulnerable groups – older students, students of color, and students from low-income backgrounds – complete their degrees in the shortest amount of time possible. This will help to reduce debt accumulation and ensure these students receive a positive return on their investment in higher education.
- Older students, students from neighborhoods with low incomes, and black and Hispanic students attend for-profit schools at a higher rate.
DCA selected for-profit college attendance as an indicator for loan default due to these colleges’ longstanding history of predatory practices, high tuition, low graduation rates, and the low amount of money spent on instruction. DCA’s research demonstrates that, as the percentage of college students in a neighborhood attending a for-profit institution increases, so does the neighborhood’s rate of student loan borrowers with debt in collections. The highest rates of attendance at for-profit schools are in the Bronx, among older students, black and Hispanic students, and students from neighborhoods with low incomes – all communities with higher rates of loan distress. DCA’s research also finds that for-profit institutions are underserving students over the age of 24 based on the dramatically lower graduation rates for these students compared to their peers attending two and four-year public institutions.
These results indicate that current models of higher education and higher education funding, designed for younger students from higher-income households, are not serving the needs of the majority of students today; many of whom may be students of color, come from lower-income backgrounds, have work and family obligations, have taken time off after high school, among other distinguishing features. These students are not receiving the benefit of their higher education pursuits, resulting in higher rates of student loan distress and default as their post-school earnings leave them unable to cover their student loan payments.
This report was developed to provide policymakers and community leaders with the information needed for effective, targeted interventions to ease the burden for New Yorkers struggling with student debt. Advocacy is one prong of DCA’s efforts to help New Yorkers struggling with student loan debt, which also include enforcement and education. In October 2018, DCA announced a lawsuit against Berkeley College – one of the largest for-profit colleges in New York State with approximately 4,000 students – alleging violations of the NYC Consumer Protection Law and local debt collection rules. DCA’s lawsuit, filed in New York County Supreme Court, alleges numerous violations and wide-ranging consumer harm, and seeks to end Berkeley’s unlawful practices and restore any illegal profits back to consumers. This case is pending trial. On the education front, DCA offers tips to help New Yorkers understand their rights and responsibilities with student loans and tips for those who are struggling with their student loan payments. DCA also offers tips to help plan and protect students when applying to schools.
DCA offers free, one-on-one financial counseling at more than 20 Financial Empowerment Centers throughout all five boroughs. At these Centers, professional financial counselors can help New Yorkers reduce debt—including student loan debt, build their savings, open a bank account, consider college savings options such as 529 accounts, and more. New Yorkers can book a confidential, one-on-one appointment with a professional financial counselor by calling 311, visiting nyc.gov/dca, or texting TalkMoney to 42033 (message and data rates may apply; check with your service provider).