The Disparate Effects of Student Debt on Black Borrowers
Disproportionately Impacted: Closing the Racial Wealth Gap through Student Loan Cancellation, Payment Reforms, and Investment in College Affordability explores inequities in the effects of student debt on Black borrowers. Released before the Biden Administration announced its plans for targeted debt relief and other student loan payment reforms, the report recommends federal policies and legislation to address the dual crises of student loan debt and college affordability.
The Root Causes of Student Debt Inequality
In the report, authors J. Geiman and Alpha S. Taylor list several reasons for the disproportionate amount of student loan debt held by Black borrowers, including:
- Misleading narratives about higher education. Although a four-year college degree can lead to a better-paying career, it does not guarantee one. Black college graduates are less likely to be hired in a job that requires a degree. They receive less pay in the same jobs as their white peers and rely far more heavily on student loans than their white peers.
- Rising tuition costs and stagnant wages. According to the Education Data Initiative, the average cost of tuition and fees has increased 130% since 1990 after adjusting for inflation. While more employers require candidates to hold a college degree, wages for these jobs have not significantly increased, making it more difficult for workers to repay their loans.
- Inadequate action to curb tuition costs and student debt. While lawmakers have tried to make college more accessible and affordable, reauthorizations of the federal Higher Education Act and similar legislation fail to address the rising cost of tuition or students’ increased dependence on expensive loans.
- Longstanding discriminatory policies and practices that continue to harm Black communities. Deeply ingrained systemic barriers in public policy, urban development, banking, education and employment systems prevent Black Americans from accessing many of the social, political and economic benefits available to white Americans. This leads to higher rates of poverty and unemployment as well as lower earnings and family wealth for Black households.
The Pandemic, Loan Providers and Disparities
The authors note two recent factors that play a major role in the disparities in student debt carried by Black Americans: the financial toll of the COVID-19 pandemic and the practices of loan servicers.
While payments and interest on federal student loans were temporarily paused under the Coronavirus Aid, Relief and Economic Security (CARES) Act in 2020, many Black households are still recovering from the early economic fallout of the pandemic that saw wide-scale layoffs and decreases in income, according to the report. Even with an improving job market and declining unemployment rates, 43% of Black households continue to struggle to pay their bills. The unemployment rate for Black workers — particularly Black women — is much higher when compared to white workers.
Research cited in the report also found that student loan servicers, third-party companies that collect and process payments on loans on behalf of the U.S. Department of Education, have discriminated against Black borrowers by providing low-quality services. This includes misleading borrowers about the options available to them, such as eligibility for affordable repayment plans or debt cancellation based on their income.
Policy Recommendations to Lower College Costs
Disproportionately Impacted offers three approaches federal policymakers can follow to effectively lower the costs of postsecondary education and reduce borrowers’ reliance on tuition loans:
- Cancel student loan debt before resuming federal student loan payments. Terminating some or all student loan debt would provide relief to borrowers, particularly Black borrowers. The report cites research that found canceling at least $50,000 in debt for all borrowers would increase the wealth of Black Americans by 40%.
- Institute major reforms to the student loan system before payments resume. This means ensuring more borrowers have access to programs that allow them to repay achievable amounts based on their income — popularly known as income-based repayment plans. Lastly, the report emphasizes improving access to income-driven repayment programs. While 4.4 million borrowers have been in repayment for 20 years or more, only 157 borrowers to date have successfully obtained loan cancellation through income-driven repayment plans.
- Take bold action to make college more affordable. The report recommends policymakers:
- Expand access to Pell Grants and free community college education.
- Resume work on a complete reauthorization of the Higher Education Act.
- Create policies that expand low-income students’ access to food and housing.