Student Debt in Low- and Moderate-Income Areas

July 10, 2014

Student borrowers from low- and moderate-income (LMI) tracts generally have lower levels of student debt than those from middle- and upper-income (MUI) tracts, but their delinquency levels are much higher.

In a recent Bridges article, Bryan Noeth, a policy analyst with the St. Louis Fed’s Center for Household Financial Stability, examined the student debt characteristics of borrowers in the Eighth District’s four largest metropolitan statistical areas (MSAs)—St. Louis, Little Rock, Ark., Louisville, Ky., and Memphis, Tenn.—focusing on the differences between LMI and MUI tracts.1

Noeth found that borrowers in LMI tracts tend to have lower levels of debt than those in MUI tracts. He wrote, “This may seem counterintuitive. Borrowers from LMI tracts likely had fewer resources to attend college so would need to take on more debt and, by definition, likely have less income to make repayments. However, there are several reasons why debt levels might be lower.”

Type of Education

In LMI tracts, many students choose community colleges with lower tuition levels, and of those who have a degree, a higher percentage of students have an associate’s degree. Also, borrowers from LMI tracts are less likely to finish college, meaning they may not take on as much student debt. Conversely, a higher percentage of students from MUI tracts attend private institutions and are more likely to attain bachelor’s and graduate degrees, which tend to have higher educational costs.

Financial Aid

Noeth noted that while students from less affluent backgrounds may have fewer resources for education, colleges charge different prices based on income. Students from lower-income families are subsidized with financial aid.

Choices after Graduation

Finally, Noeth discussed that it’s possible that students sort where they live after college based on some factor in common with their level of student debt. For example, those with graduate degrees (and likely the highest levels of student debt) may move to high-income areas after graduation.


While students in LMI tracts may have lower levels of student debt on average, these lower levels don’t necessarily mean that borrowers from LMI tracts don’t have trouble making payments. In fact delinquency rates for the four metro areas studied are much higher for borrowers from LMI tracts.

He concluded, “LMI communities are feeling the effects of the increasing reliance on student debt. Lower income makes repayment of loans more difficult, even though borrowers’ debt burdens may be lower.”

Notes and References

1 Using standard practice, census tracts are classified as LMI if the median income within the census tract was below 80 percent of the MSA median income. If the tract median income was greater than or equal to 80 percent of the area median income, it was classified as MUI.

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This blog offers commentary, analysis and data from our economists and experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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