Would Canceling Student Debt Promote Racial Equity?

Many people view canceling student debt as a racial justice issue that would help many Black people struggling to repay their loans -- but most of the people who'd be helped are white and those with high incomes.

February 23, 2021
 
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Ashley Harrington is among the many people who see canceling student debt as an issue of racial justice.

For many Black Americans, centuries of discrimination have led to white people having much more wealth than Black people, she and others say.

So when it comes time for students to go to college, Black families are much less likely than white families to have the money to help pay for their children's education.

As a result, Black students are more likely to have to borrow for college. And they have to borrow more.

If they graduate, they will start life having to pay back loans, while white students who didn't have to borrow or borrowed less are spending money, perpetuating the wealth, Harrington and others said at a panel discussion in December organized by the Center for Responsible Lending, a consumer advocacy group.

The nation’s $1.7 trillion in student debt is “disproportionately affecting Black Americans and communities of color,” Harrington, the group’s federal advocacy director, said during the discussion.

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“The impact of cancellation for millions of low-income and low-wealth borrowers -- particularly people of color -- will be massive,” she said.

The group is among a number of progressive organizations calling on President Biden to wipe away $50,000 from the student loan debts of all borrowers through an executive order.

But while they understand the argument Harrington and others are making, some, like Sandy Baum, a senior fellow at the Urban Institute, see canceling that amount of debt for everyone with student loans as benefiting white borrowers more than Black borrowers.

Particularly when well-to-do white college graduates, able to pay back their loans just fine, would see tens of thousands of dollars in debt simply disappear.

Most of the nation's student loan debt, after all, is held by white people and people making higher-than-average incomes.

Of the loans taken out by students who started college in 2011, Baum said white borrowers held 59 percent of that cohort’s debt in 2017. Only 17 percent of the debt was held by Black borrowers.

Similarly, a study by Matt Bruenig, president of the People’s Policy Project, last November found that of the student debt held in 2019, 63.4 percent was held by white borrowers and 24 percent by Black borrowers.

In other words, Black people make up a much higher percentage of the nation's student debtors than their proportion of the U.S. population, which was 13.4 percent in 2019, according to the U.S. Census.

“Because the majority of students are white, and because white students tend to stay in school longer than Black students, they hold a much larger share of the debt,” Baum said.

And then, critics of debt cancellation ask, where’s the fairness of spending billions in forgiving the debt of college graduates, which would do nothing for Black people and others who didn’t have the opportunity to go to college and tend to make less money?

Biden during a CNN town hall last week didn’t address the racial component of the debate. But in addition to questioning whether he even has the authority to cancel debt, Biden said wiping away up to $50,000 in debt from those who went to elite universities, like Harvard and Yale Universities and the University of Pennsylvania, was too much.

Instead, Biden said he’d support Congress -- not him -- forgiving a lesser amount, $10,000. The difference in the money could be spent on other things like improving early childhood education or bolstering historically Black colleges and universities, he said.

However, a Center for Responsible Lending study in November found the smaller amount of cancellation would have less of an impact. Canceling $50,000 of debt would mean 75 percent of borrowers would no longer owe any money. Canceling $10,000 would only make 28 percent of borrowers debt-free.

Biden acting alone appears to be the best hope of canceling that much in debt.

Even many Democrats in Congress appear skeptical of canceling up to $50,000 in debt, although the Senate’s top Democrat, Charles Schumer, of New York, and leading Democratic progressives like Senator Elizabeth Warren and Congresswoman Ayanna Pressley, both of Massachusetts, are urging Biden to take action.

Even if more of the debt that would be canceled were held by white borrowers, proponents like Harrington still see canceling a large amount of debt as bringing about equity.

Yes, some rich white lawyers might end up with more money to put into their investments or buy a second home. But on the whole, Black students are struggling more than white students with having had to go into debt to have their chance at higher education.

Wiping away their debt would be a recognition of the disparities that led Black students to have to borrow in the first place.

“Because of generations of what I call policy violence -- redlining, employment discrimination -- Black families have been locked out of wealth building,” Pressley said at the Center for Responsible Lending forum.

More white students than Black students may have student loans, but a greater percentage of Black students than white students are in debt and would benefit from cancellation, wrote Laura Sullivan, the New Jersey Institute for Social Justice’s director of economic justice in a 2019 study, when she was a senior research associate at Brandeis University’s Institute on Assets and Social Policy.

Among students starting college in 1995 and followed for 20 years, 43 percent of white students were able to go to college without having to go into debt, the study said. In comparison, only a quarter of Black students were able to attend college without borrowing.

In a 2018 study, the Federal Reserve Bank of St. Louis found that 58 percent of Black young adults said their parents helped pay for college, chipping in an average of $4,200 over the course of their college career.

In comparison, 72 percent of white youths said they got help from their parents in paying for college. And they got nearly three times as much as their Black classmates over the course of their four-year education, an average of $12,000.

“Due to structural wealth and inequality in our society, Black parents were less able to protect their young children from accumulating large debt burdens,” the study’s author, Fenaba Addo, a University of North Carolina at Charlotte associate professor of public policy, said at the forum.

“White borrowers who borrowed less were able to repay their students loans quicker. So they're able to start saving and accumulating wealth while Black borrowers are still repaying their debt,” Addo said.

“The $1.7 trillion of student debt is a burden that never should have amassed in the first place,” Harrington said.

And then, even after getting bachelor’s degrees, a greater percentage of Black than white students continue to add to their debt by borrowing money to go to graduate school.

A 2016 Brookings Institute study found that 47 percent of Black students who started college in 2008 enrolled in graduate school. In comparison, 38 percent of white students in the same period went on to graduate school.

As a result, four years after getting their bachelor’s degrees, Black graduates had on average nearly $25,000 more student loan debt than white graduates, $52,726 compared to $28,006, the study said.

There’s a racial component to the disproportionate percentage of Black students going on to graduate school, said Darrick Hamilton, director of the New School’s Institute for the Study of Race, Stratification and Political Economy. He also served on the task force Biden and progressive presidential candidate Bernie Sanders formed to bridge their policy differences after Biden won the Democratic presidential primary last year.

“I believe it’s a résumé-building strategy,” Harrington said during the forum. “If you know the labor market is going to be more discriminatory towards you, one strategy might be to make sure that you’re highly credentialed when you go into that labor market.”

Then, since they have gone into debt, advocates for cancellation argue, inequities make it more difficult for Black borrowers to repay their loans than whites.

“Frequently without family financial wealth to support repayment and facing ongoing discrimination in the labor market, Black borrowers are much more likely to experience long-term financial insecurity due to student loans,” Sullivan wrote in her paper.

She found that the typical Black student borrower took out about $3,000 more in loans than their white peers.

But 20 years after starting college, the typical Black borrower owed about $17,500 more than their white peers.

After that time, nearly half of white borrowers were free of student debt, compared to only 25 percent of Black borrowers, the paper said.

Two decades after beginning their degrees, the median Black student still had $18,500 in loans left to pay off. Median white borrowers only had $1,000 in debt left. In other words, whites had paid off 94 percent of their debt, but Black borrowers still had 95 percent of their debt left.

“Rather than serving as a springboard, the loans serve as an anchor keeping young Black adults in an uncertain economic precarity,” Sullivan wrote.

In a 2017 paper, Ben Miller, then the progressive Center for American Progress’s senior director for postsecondary education and now temporary senior adviser to the education secretary’s chief of staff, blamed continued discrimination in the difficulties Black students have paying down their student loans.

Miller, in a paper, wrote that 12 years after entering college in 2003, white borrowers had reduced their student debt by 35 percent. But in comparison, Black borrowers actually owed 13 percent more than the amount they had taken out.

“Racial discrimination in hiring has not improved over the past quarter century,” he wrote, citing a 2017 National Academy of Science study. “Sending African American students into an inequitable adulthood with large debts from college can put them even further behind than they are already.”

Student debt has had an impact on Black Americans, Pressley said at the forum.

“It is keeping Black families from buying a home or saving for retirement. It is exacerbating the mental health crisis in our country,” she said. “I know people who have worked themselves into an early grave because no matter how hard they worked, they owed someone.”

Pressley said she didn’t have a cellphone for years because of the memory of debt collectors constantly calling her home when she was a child.

“So a ringing phone was very triggering because it was someone with a demand I wasn't going to meet,” she said.

Baum agreed inequities do exist. “Many borrowers do struggle with student loan payments -- particularly those who do not have families who can help them or who have difficulty navigating the complex system,” she wrote in a Brookings Institution report last October with University of Utah finance professor Adam Looney.

Still, Baum and Looney wrote, it’s important to remember that those who’d benefit from debt cancellation are better off than a lot of other people, who may be struggling more, especially during the pandemic.

The Brookings researchers noted that 20 percent of the nation’s debt is held by the 3 percent of Americans with professional and doctorate degrees. And their median 2019 salary was $106,000, or more than double the national median salary of $47,000.

“It should be no surprise that higher-income households owe more student debt than others,” wrote Baum and Looney. “Students from higher-income households are more likely to go to college in the first place. And workers with a college or graduate degree earn substantially more in the labor market than those who never went to college.”

Baum and Looney noted that many low-income borrowers are enrolled in plans that base monthly payments on their income. As a result, the Brookings paper found that those with the lowest 40 percent of income hold 19 percent of the nation’s outstanding debt. But they make only 10 percent of the repayments.

Those in the top 40 percent of income may hold 60 percent of the debt but make 73 percent of the payments.

“During the pandemic, less-educated workers have been most likely to lose their jobs,” the report said. “Zoom might work for lawyers, financial advisors, and insurance managers, but it doesn’t work for restaurant and retail workers whose households are less likely to have student loans.”

And Baum noted in an interview that 46 percent of Black adults have not been to college. “They are clearly the people struggling the most. And most harmed by the pandemic. If we want to make $10,000 handouts, why would we leave all of them out?” she said.

“I’d be fine with giving everyone -- including Bill Gates -- $10,000. But not with leaving out people who didn’t go to college,” she said.

Still, Pressley argued at the forum that canceling debt “with a stroke of the pen,” even for upper-income Black borrowers, would bring about “restorative justice.”

Concerns that canceling debt would be regressive, she said, “largely ignore the flaws and systemic racism that exists.”

Certainly those who did not go to college need help, too. “It’s not a matter of or. It’s a matter of and. I want it all,” she said.

“We’re always asked to wait, and this is not a time to be shelving what we are owed,” she said.

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