DISCRIMINATION IN MORTGAGE LENDING - THE IMPACT ON MINORITY DEFAULTS IN THE STAFFORD LOAN PROGRAM

One troubling finding of researchers analyzing the Stafford Loan progr am is the high incidence of default among African-Americans. Moreover, other studies have shown that blacks are often discriminated against in obtaining home mortgage loans. Typically, borrowing and repayment d ecisions within the sectors of the credit market are analyzed in isola tion. This paper, however, links the default derision in the student l oan market to borrowing expectations in the mortgage home loan market. Given that the primary cost of not repaying one's educational loan is a damaged credit record, for those students who expect to be discrimi nated against In the credit market following their schooling, this cos t is ineffective. Mis paper reveals that African-American student loan borrowers have made an economically rational decision when they choos e to default on their educational loans because ther foresee themselve s to be excluded from obtaining home mortgage loans whether they repay their student loans or not.