Cultural Barriers Document

ECMC Group FoundationAn ECMCGROUP companyCultural Barriers to Incurring DebtAn Exploration of Borrowing and Impact on Access to Postsecondary EducationMarch 2003Prepared by Caliber Associates

ExecutiveSummaryGiven the central role higher education plays indetermining the material well-being of U.S. citizens,understanding the role of financial aid in helping studentsmanage the costs of postsecondary education is critical.The increased reliance on student aid in the form of loansmay have important consequences. A recent studycompared how college students paid for college inacademic year 1992-1993 and academic year 1999-2000,and found no increase in the percentage of studentsborrowing in the lowest-income quartile: roughly halfborrowed in both survey years. In sharp contrast, studentborrowing increased markedly for both middle-incomeundergraduates (from 32 to 45 percent) and high-incomeundergraduates (from 15 to 31percent).*The fact that recent increases in student borrowingseem to be limited to middle- and upper-incomestudents calls into question the effectiveness ofstudent loans in aiding low-income populations.Because there is a greater percentage of low-incomestudents in certain ethnic populations (see Exhibit 4) thisfinding also could be indicative of cultural aversions todebt.The ECMC Group Foundation has funded thisstatistical analysis to investigate and report on culturalattitudes toward borrowing money, and whether culturalattitudes affect student loan borrowing. Using data fromthe U.S. Census Bureau’s Survey of Income and ProgramParticipation (SIPP) and the U.S. Department ofEducation’s NationalPostsecondary Student Aid Study(NPSAS), we examined disparitiesamong ethnic groups in the willingness to financehigher education through student loans. We defined thegroups examined by combining U.S. Census Bureau ethnicitycategories in the SIPP data (White, African-American, Hispanic, Asian/Pacific Islander, NativeAmerican) with U.S. citizen status (native born citizensversus naturalized foreign born and noncitizens). Becauseof the way the U.S. Census and SIPP data are organizedwe were not able to break down these groups into furthersubgroups (i.e. within Hispanic and Asian/PacificIslander), or to include other groups (i.e. Middle-Eastern)in a statistically significant way.This study analyzed other types of debt in addition tostudent loans because by definition, student loans areonly taken out by students, and/or in some cases theirparents. Because we are interested in cultural differencesin borrowing, we needed to look at nonstudent familiesas well as student families. Accordingly, we also examinedother types of debt, using mortgage debt as our primarymeasure of different ethnic groups’ willingness to assumelong-term debt. Both student loans and mortgages can beclassified as “good-debt,” that is, borrowing money in areasoned way for good purposes. The strong correlationobserved in the SIPP data between mortgage debt andother consumer debt (e.g., auto loans, credit cards, etc.)suggests that mortgage debt also is a good measure for ahousehold’s general attitude toward borrowing.* Horn, L., Chang Wei, C. & Berker, A. (2002). “What students pay for college: Changes in the net price of college between 1992-93 to 1999-2000.” NationalCenter for Education Statistics, NCES 2002-174, Project Officer: Dennis Carroll. Washington, DC: U.S. Department of Education.ECMC Group Foundation • 4001 Office Court Drive • Building 700 Santa Fe, New Mexico 87507-4956 • Toll free: 866.FDN.ECMC • www.ecmcfoundation.org 2

The three central research questions and associatedfindings of this study are the following:1. Do ethnic groups differ in their tendency to financehigher education with student loans and enroll inpostsecondary institutions?loan than White natives. (Asian/Pacific Islanders whowere not native U.S. citizens were the only groupsignificantly more likely than White natives to enroll inpostsecondary education with and without a loan.) Pleasesee appendices for further explanation of the constructionof the model used in this study.The tendency of postsecondary students to borrowvaried by ethnic group. White (37 percent) and African-American (36 percent) natives who were enrolled incollege were most likely to have student loans. Asiannatives (19 percent) and White non-natives (19 percent)were least likely to incur student loans.The likelihood of enrolling in a postsecondaryinstitution also varied by ethnic group. Asian/PacificIslanders were the most likely to enroll in college — 67percent of Asian/Pacific Islander natives and 72 percent ofAsian/Pacific Islander non-natives attended college. Thepercent of White natives who enrolled was lower thanAsian/Pacific Islanders (54 percent) but more thanHispanic natives (50 percent), African American natives(50 percent), Hispanic non-natives (46 percent), andNative Americans (40 percent).In order to consider the relationship betweenethnicity and borrowing, we generated a multinomiallogistic regression model that controlled for the followingsocio-economic factors:Adjusted incomeAgeHigher education level (head of household)Marital status (head)Number of childrenMetro or rural2. Do ethnic groups have different attitudes towarddebt?Using mortgage status as a measure for a family’swillingness to assume good debt revealed wide disparitiesamong ethnic groups. White natives were far less likelythan other ethnic groups to rent, and more likely to owntheir home free and clear or to have a mortgage. 73percent of White natives owned their own home, or hada mortgage as opposed to African American natives(48 percent), Hispanic natives (49 percent) and Hispanicnon-natives (39 percent).However, other socio-economic factors account formost of these ethnic differences. Our statistical modelpredicting whether a household rented or had a mortgagefound that the advantages White natives enjoyed inhigher levels of income and a greater tendency to bemarried primarily explained home ownership levels. Oncewe controlled for these and other socio-economic factors,the only ethnic based differences in mortgage status thatremained were for Asian/Pacific Islander non-natives andHispanic non-natives. Both groups had lower levels ofhome mortgages but this is not surprising since thesegroups include recent immigrants who are less likely tohave a mortgage than native-born residents.3. Are differences in postsecondary enrollment relatedto general attitudes toward debt?This model predicted three mutually exclusive outcomes:not enrolled in college, enrolled without a student loan,and enrolled with a student loan. While not all resultswere statistically significant, most minority groups wereless likely to be enrolled in college with an educationalMortgage status, our proxy for debt in general, isstrongly related to postsecondary enrollment and thedecision to obtain student loans. Nearly two thirds (63percent) of young adults from households with a mortgageenrolled in college, while less than half (48 percent)ECMC Group Foundation • 4001 Office Court Drive • Building 700 Santa Fe, New Mexico 87507-4956 • Toll free: 866.FDN.ECMC • www.ecmcfoundation.org 3

of young adults from rental housing enrolled in college.Even though households with mortgages typically havehigher levels of income than households who rent, andone might think students from these households wouldhave less need to take out loans, a greater percentage ofstudents from households with a mortgage (22 percent)took out a student loan than students living in rentalhousing (17 percent).The bullet above expresses a singular relationshipbetween postsecondary enrollment and mortgage status,however mortgage status correlates with other socioeconomicfactors. To account for this, we constructed amultinomial logistic regression model to control for thesefactors when looking at mortgage status and postsecondaryenrollment. We found that mortgage status had aprofound impact on postsecondary enrollment, evenwhen controlling for ethnicity and other socio-economicfactors. Our model estimated that entering college from ahome with a mortgage (rather than a lease) increased theodds of enrolling without a loan (38 percent) andenrolling with a loan (44 percent).Our results suggest that differences in mortgage debtcorrelate to disparities in the willingness to finance highereducation with borrowed money. A prospective studentfrom a family who has a mortgage may be relatively morecomfortable assuming his or her own long-term obligationto pay off student loans. The lower “comfort level”prospective students from rental housing may have withstudent loans could be restricting their educationaloptions beyond high school to what they can affordwithout borrowing.Future Considerations and ImplicationsIn order to increase access to postsecondary education, werecommend that the ECMC Group Foundation continueits study of attitudes toward debt using narrative researchmethods (i.e., interviews, surveys, focus groups) todetermine why students from families with mortgages aremore likely to obtain student loans. A better understandingis needed of the reason(s) why a family’s history withborrowing money is such a good predictor of postsecondaryenrollment. As we stated above and will show inthe Analysis section,differences among ethnic groups in attitudestoward borrowing money, in general, appear to bedue to socio-economic level, not ethnicity.If the increased willingness to obtain student loans onthe part of young adults from families with higher levelsof other debt merely reflects a greater capacity to repaythese loans, then outreach efforts will be limited in theireffectiveness. If, however, positive attitudes toward debt,in general, partially are responsible for differences intaking advantage of loans to pay for higher education,then outreach efforts seeking to instill similar positiveattitudes among underrepresented ethnic groups may beable to increase their access to postsecondary education.We therefore recommend that the ECMC GroupFoundation issue a subsequent RFP for the design of sucha program.ECMC Group Foundation • 4001 Office Court Drive • Building 700 Santa Fe, New Mexico 87507-4956 • Toll free: 866.FDN.ECMC • www.ecmcfoundation.org 4