Although the year 2020 has been dominated by continuing news coverage of the COVID-19 pandemic’s rising death toll that has now claimed the lives of nearly 300,000 Americans, it is not the only challenge facing the nation.
Amid rising unemployment and food insecurity, an estimated 45 million Americans struggle at the same time with the crushing weight of more than $1.7 trillion in student debt.
A disproportionate amount of this financial burden is carried by Black people and other people. These racial disparities in student debt cannot be ignored. Massive debts delay, if not if deny, wealth-building opportunities for Blacks people and others who believe higher education remains the bridge to a financially secure future.
Before the coronavirus pandemic and its resulting recession, one of every four student loan borrowers was in either default or serious delinquency. Black students experience default at a much higher rate (37.5%) than their peers who are Latino (20%), or White (12.4%), according to an independent report by the Brookings Institution. Even after 20 years of loan repayments, the typical Black borrower still owes 95% of the original cumulative balance.
A new research report, jointly released by the National Consumer Law Center and the Center for Responsible Lending, outlines the financial toll taken by this unsustainable debt and pinpoints remedies to systematically address the crisis.
In part, the report states: “Pursuit of education in America should not be such a high stakes gamble … Borrowers who took out loans to access an education should not have those debts follow them to the grave.”
Ashley Harrington is the federal advocacy director and senior counsel for the Center for Responsible Lending. Harrington spoke directly to the racial equity implications.
“For many, especially Black and Latino borrowers, repayment has been too onerous and too long, preventing them from achieving financial security even under normal circumstances,” Harrington said.
Canceling student debt and reforming the repayment system are vital for Black borrowers and communities.
“Short-term payment suspension alone will not help struggling borrowers who have lost their jobs or who were already in default or serious delinquency before the public health crisis started.
“To address our current recession and stimulate economic recovery, we urge President-elect Biden to immediately follow these simple steps and prevent further financial devastation for vulnerable borrowers and communities.” Harrington said. “The time to cancel student debt and provide student borrowers with significant relief is now.”
While student loan debt cancellation and the other proposed reforms would provide much-needed relief to borrowers, it would also bring the opportunity to redirect these dollars to better participate in the nation’s economy. Starting a business or transitioning from renters to homeowners are but two examples of ways to build wealth and financial security.
Other major research reports have also connected lengthy student debt and its restrictions to economic mobility and lifetime wealth-building. Research has established that student debt can prevent borrowers from buying homes, starting businesses, going to graduate school, and even starting families.
For example, a 2019 research report by Brandeis University’s Institute on Assets and Social Policy found that after 20 years of student loan repayments, the median debt of White borrowing students has been reduced by 94 percent — with almost half holding no student debt — whereas Black borrowers at the median still owe 95 percent of their cumulative borrowing total.
“It is clear that in the context of existing inequalities in wealth and assets by race/ethnicity, the privatized system of higher education financing serves to further exacerbate the racial wealth gap among young people,” the Brandeis report said.
“It has saddled young borrowers of color, particularly Black borrowers, with debt that creates economic insecurity for decades and limits new wealth-generating opportunities such as homeownership.”
Despite noble contributions and achievements, there is no doubt that as a people we continue to be financially short-changed. Now as we approach a New Year and a new White House, systemic changes are both needed and possible.
Canceling student debt and reforming the repayment system are vital for Black borrowers and communities.
But targeted actions in other areas of concern are also necessary before this and future Black Americans can secure financial stability or build wealth. An even longer road map to relief — beyond student debt — must address other root causes of the racial wealth gap. Access to affordable credit, including safe and responsible mortgage loans, and an end to all forms of predatory lending are representative of these “other” reforms.
Lifting the trillion-dollar debt of student loans is an important first step to financial equality.
Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at charlene.crowell@responsiblelending.org.
