Today, student debt is a larger source of household indebtedness than credit cards or automobiles, and is surpassed only by home mortgages. From 1993 to 2012, the share of students taking out loans to finance their degrees rose from roughly half to over two-thirds. Between 1993 and 2020, the average loan amount grew nearly three-fold, exceeding $30,000.
This wouldn’t be much of a problem if borrowers’ incomes increased comparably. But alas, the upsurge in tuition has outpaced the rise in wages and overall inflation.
While most analysts and politicians across the political spectrum believe we have a student debt problem, there is no similar consensus in their various proposals on how to deal with it. Much of the debate revolves around how much student loan debt should be discharged. However, it’s the “who” in policy that determines many budgetary considerations. Understanding the impact of student debt on specific groups can shed light how much we should cancel overall.
Arguments that canceling all student debt is regressive, because it will primarily benefit the rich, fall flat.
But we’ve struggled as a nation to appropriately determine the “who” in public policy and research, cherry picking who should benefit from student debt abatement or who should shoulder its burdens. One of the most consequential manifestations of that struggle is the Black-white wealth divide.
Generations of anti-Black, exclusive policy contributed to white families amassing 10 times as much wealth as Black families. Not only did federal, state and local legislators intentionally throttle Black wealth with malicious policies that exacerbated the legacy of slavery, such as Jim Crow laws, biased housing and criminal justice practices, they excluded Black Americans from reaping the full benefits of the New Deal, which lifted many more white families out of poverty and enabled them to pass on intergenerational wealth.
Our solutions for the student debt problem should not repeat this sordid history. In fact, past discrimination means we must first check how a policy might impact historically disenfranchised groups before we propose it. One of the most repeated mistakes in the student-debt-cancellation debate is the assumption that all people within particular income strata have the same ability to pay back their loans, masking the lived experiences of Black people. Color-blind income analyses miss the mark.
Related: Cancel all student debt
Ignoring wealth and the racial wealth divide is to bury one’s head in the sand to racial injustice. Arguments that canceling all student debt is regressive, because it will primarily benefit the rich, fall flat. Most student debt is held by households with zero to negative net worth, and Black people are overrepresented among that group. An estimated 19 percent of Black American families have zero to negative net worth compared to 8 percent of white families.
Over the last quarter century, Black people went to college at higher rates, but we also took on more debt than our peers, damaging our capacity to purchase homes and start businesses. In a new Brookings Institution/Jain Family Institute research brief, Jain Family Institute senior fellow Marshall Steinbaum, Brookings research assistant Carl Romer and I demonstrate that Black people take out higher amounts of student loans than every other racial group. In addition, Black students’ current loan balances are much more likely to exceed the original amount, revealing the impact of discrimination on wealth.
This chart illuminates the results of Black people’s efforts to obtain economic equality, our lack of wealth and our need for federal aid.
Not only are individuals saddled with debt, so are entire neighborhoods. Our report, titled “Student loans, the racial wealth divide, and why we need full student debt cancellation,” shows student debt as a share of income is highest — and growing fastest — in the lowest-income areas.
The claim that student debt cancellation is regressive tends to be followed by pointing out that a large number of borrowers have a small amount of debt, and a relatively small number of borrowers carry a large portion of the total debt burden. That much is true, but the unstated implication is that the low number of high-balance borrowers that would benefit the most from cancelling outstanding balances tend to also have higher incomes.
That implication is false.
The plurality of outstanding debt is held by borrowers with higher balances who live in census tracts in which the median income is between $20,000 and $40,000. Meanwhile, high-income census tracts account for a very low number of borrowers, affirming that wealthy people are less likely to have student debt because they don’t need loans, and, if they take out loans, are more likely to pay them off quickly.
Other studies have reported that differences in interest accrual and graduate school borrowing lead to Black graduates holding about twice as much student debt, $53,000, as our white counterparts four years after graduation. Given the racial wealth disparities and debt-to-income ratios, it’s not surprising an estimated 7.6 percent of Black graduates default on loans within four years of graduation, compared to 2.4 percent of white graduates.
Without question, we have a student debt problem. Real solutions can be found when Black lives are recognized in policy and research.
When all student debt is cancelled, the numerical difference between the wealth of non-Black and Black households shrinks significantly for households between the second and 20th percentiles, as Carl Romer and I described in “Student debt cancellation should consider wealth, not income,” published in February. Likewise, we found that the more debt is cancelled, the greater the racial wealth gap is reduced at every wealth percentile.
Now, those are the kinds of student debt solutions we all need, not efforts that replicate the mistakes of the past. We should center the lived experiences of Black borrowers to guide our solutions to the student debt crisis, an idea we have yet to try.
This story about Black student debt was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for Hechinger’s newsletter.