NYLAG Lawsuit Reveals U.S. Department of Education Data Showing Student Loan Judgments Targeting Majority-Black Neighborhoods

NYLAG Lawsuit Reveals U.S. Department of Education Data Showing Student Loan Judgments Targeting Majority-Black Neighborhoods

• October 28, 2024
• 6:36 am

NEW YORK - Defaulted federal student loanscan have serious negative consequences for borrowers, but a small subset of borrowers has an even worse problem: the government files a lawsuit against them and obtains a judgment forcing them to pay back the money. Those lawsuits can ruin people's lives, because borrowers with judgments lose access to programs that help borrowers get out of default, and the judgments never expire.The government has not made public how it decides which defaulted borrowers to sue, so NYLAG filed a Freedom of Information Act (FOIA) request seeking that information, as well as data about judgments.

The New York Legal Assistance Group (NYLAG) obtained new data about federal student loan borrowers with judgments against themafter suing the United States Department of Education for failing to respond to its FOIA request. According to the Department of Education, this dataset "reflects the number of borrowers in each zip code who currently have a judgment against them for defaulted student loans."

The new government dataset released by NYLAG shows extreme racial and economic disparities. Specifically, student loan judgments are highly concentrated in majority-Black neighborhoods:

• The ten zip codes with the most borrowers with judgments, comprising 10% of all judgments, all have at least three-quarters Black residents and are, on average, 88% Black.

• The thirty zip codes with the most borrowers with judgments, comprising 21% of all judgments, are, on average, 73% Black.

• Zip codes with only one or two borrower judgments are on average 20% Black, still above the national average of 12.1%. But zip codes with ten or more borrower judgments are on average 72% Black.

• The ten zip codes with the most borrowers with judgments per 100,000 people are, on average, 83% Black. In these zip codes, on average, 35% of the population is living below the poverty level.

• The thirty zip codes with the most borrowers with judgments per 100,000 people are 76% Black. In these zip codes, on average, 30% of the population is living below the poverty level.

The new data and analysis released by NYLAG builds upon the work of the National Consumer Law Center, EdTrust, and others who have identified student loan judgments as profoundly inequitable, and the student loan system as having particularly harsh consequences for Black borrowers. The high concentration of student loan judgments in majority-Black neighborhoods suggests an urgent need for pathways to relief for borrowers with judgments as a racial justice issue.

"This data confirms NYLAG's anecdotal evidence in that an overwhelming majority of our clients with student loan judgments are Black borrowers, including many who attended predatory, defunct, for-profit schools," saidShanna Tallarico, Project Director of NYLAG's Consumer Protection Unit. "We have clients who have judgments on decades-old loans, who have paid back far more than they ever borrowed, and many who are unable to escape the judgment."

"Judgments against borrowers are so unfair, because borrowers just like them who were not sued have options to get out of default," said Jessica Ranucci, Supervising Attorney in NYLAG's Special Litigation Unit."The extreme racial disparities illustrate the depth of the injustices at play here and the urgent need for a pathway to relief for these borrowers."

One possible explanation for this striking inequality is that the Department of Education maintains a two-tiered policy that treats borrowers differently based on where they live: For most borrowers, the minimum principal balance of their loan must be at least $25,000 in order for the account to be referred to litigation. But borrowers who live in some areas can be sued even if their balance is just $600. These are the areas where the Department contracts with private law firms who zealously pursue litigation and include parts of Texas and Michigan-likely leading to the top zip codes of borrowers with judgments being concentrated in majority-Black neighborhoods and suburbs of Detroit and Houston. Here in New York City, for example, a borrower can be sued on a loan as low as $600 if they live in Brooklyn, Queens, or Staten Island (which together, have about 1.2 million Black residents), but not if they live in Manhattan or the Bronx.

The full dataset as received by NYLAG from the Department of Education is available hereand Department of Education's cover letter is available here. NYLAG's dataset that includes demographic data is available here. All demographic data is based on the 2022 American Community Survey available here. The dataset the Department of Education released to NYLAG contains only 2,843 borrowers, and only 14 of them are in New York State. These numbers are implausibly low, suggesting that the Department may lack reliable data on borrowers with judgments.

###

Related Articles

« PreviousNext »