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Soaring unemployment and underemployment, a result of the coronavirus pandemic, are forcing college borrowers to defer loan payments to make room for things like food and rent. Back in March, student loan borrowers received a reprieve with the passage of the Coronavirus Aid, Relief, and Economic Security Act, which included provisions that suspended loan payments. But those provisions are set to expire next month.
The effects of the pandemic on economic activity will last well beyond the end of the social distancing, as my Brookings colleagues have pointed out. Many economists predict a long, drawn out recovery, spanning years. Even if borrowers defer their loans for an extended period of time, the albatross of debt, which weighs heavier for borrowers of color, will continue to be a drag on the overall economy.
A move to cancel student debt for borrowers, especially Black and Brown students, who could not draw upon the equity in a family home or other savings will put more spending money in people’s pockets at a moment when the economy desperate needs it.
Student borrowers, like others who are struggling to cope with acute economic and health crises, need immediate and permanent relief. Congress needs to enact bold, structural changes to the economy: It must cancel student debt for borrowers who have yet to recover from the epidemic of structural racism. More debt equates to less spending; if we cancel student debt for those who carry the most, it will free up more income that can be used in the marketplace in ways that expand regional and national economies.
Otherwise, student borrowers without wealth — the sum total of the value of assets minus debt — to fall back on could face decades of hardship. Black people know this truth all too well.
Past anti-Black federal policies and practices in housing precluded Black people from building wealth, forcing a higher proportion of Black borrowers to take out loans for higher education. A 2016 Brookings Institution study found that upon graduation Black college graduates owe, on average, $7,375 more in student loans than their white peers ($23,420 versus $16,046). Importantly, that difference increases with time. Examination of Black and white college graduates four years after graduation showed that the loan gap more than tripled during that period, to $52,726 versus $28,006, a difference of nearly $25,000. By cancelling student-loan debt for low-wealth individuals, we help create wealth among Black and Brown people who have historically been denied access to it.
By helping restore the wealth that has been extracted by racism and ethnic bigotry, not only will we right previous injustices, we will stimulate growth to the economy. A move to cancel student debt for borrowers, especially Black and Brown students, who could not draw upon the equity in a family home or other savings will put more spending money in people’s pockets at a moment when the economy desperately needs it.
The burden of college debt has an outsize impact on Black college graduates: Where a college degree improves the long-term finances of white college graduates, the same is not true for their Black counterparts. A 2017 study from the Federal Reserve Bank of St. Louis, cited by the Bureau of Labor Statistics’ Monthly Labor Review, found that from 1989 to 2013 the median net wealth of white college-educated households increased by $31,343, while that of Black college-educated households fell by $19,816. A post-secondary degree shouldn’t just help people gain higher incomes. Removing student debt will help historically marginalized groups gain requisite wealth to achieve the American Dream while stimulating the economy.
Congress can begin to right past wrongs while stimulating the economy by helping low-income families break cycles of poverty and contribute more to state coffers. This should be in the next relief bill. Unfortunately, the current GOP proposal won’t help relieve student debt in the short or long term.
College attendance has evolved to become an essential rung on the economic ladder toward the American Dream for most Americans. If we work hard in college and get a degree, we should be able to get a good job, buy a home or start a business. What’s hidden in the American Dream narrative is the reality of anti-Black policies that throttled the economic potentials of generations of Black and Brown families.
Investing in people who have suffered economically from past discrimination is a stimulus plan we have yet to try.