How Loan Fees Can Drain The Wealth Of Women And People Of Color

For some, the fees tacked onto payday and student loans make upward mobility nearly impossible.

By Joy DiazFebruary 7, 2020 11:49 am, ,

According to a recent report, graduates of Historically Black Colleges and Universities and colleges with majority Hispanic populations might be paying more for student loans.

That report highlighted the larger problem of hidden and extra fees doled out by financial services companies – fees that exacerbate the wealth gap between men and women, and white people and people of color.

Devin Fergus researches how these fees disproportionately affect some Americans, and wrote about it in his 2018 book, “Land of the Fee.” Fergus is the Strickland Distinguished Professor of History, Black Studies and Public Affairs at the University of Missouri. He says the fees that are most problematic are the ones related to upward mobility, especially those tacked onto student loans.

“A fee is anything that’s in addition to the principle [balance],” Fergus says.

He says lenders will often call costs “fees” instead of “interest” in order to avoid regulation. That’s particularly common with payday loans.

“There’s a sort of bait-and-switch game often played by those in the consumer financial industry,” Fergus says.

People from all kinds of backgrounds are vulnerable to debt from fees. That’s because Fergus says people often overestimate how likely they are to be able to pay off the debt in the future. But people of color and those with lower incomes are particularly vulnerable. Fergus says more credit became available to those people 40 years ago, but then the government didn’t adequately regulate the businesses lending to them. Now, communities with predominately non-white residents are saddled with billions of dollars of debt.

Fergus says if lenders reduced fees by just 1%, they would free up billions of dollars for people to spend in those communities.

And it’s not just people of color who feel the effects of fees. Fergus says they also affect women more than men, especially when it comes to student loans because women are more likely to borrow to pay for college. And they rarely pay that debt back within 10 years.

“The average borrower actually takes 20 years to pay back that student loan,” Fergus says.

Black women, in particular, he says, leave college owing more than they’ll earn.


Written by Caroline Covington.