The Student Debt Crisis, Labor Market Credentialization, and Racial Inequality: How the Current Student Debt Debate Gets the Economics Wrong

By Julie Margetta Morgan, Marshall Steinbaum |

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As tuition has risen over the last several decades in the U.S., student loan debt has ballooned. Despite growing debt loads, federal policy encourages the use of loans for financing higher education, based on the assumption that student debt supports increased postsecondary attainment—and, in turn, improved outcomes for individuals and our economy as a whole. In The Student Debt Crisis, Labor Market Credentialization, and Racial Inequality, Roosevelt Fellow Julie Margetta Morgan and Research Director and Fellow Marshall Steinbaum investigate the individual and societal effects of student loan debt by focusing on trends in student debt and labor market outcomes. Findings include:

  • More education has not led to higher earnings over time.
  • Student debt is a burden for a growing share of young adults.
  • Credentialization better explains these dynamics than the “skills gap.”
  • These trends have had particularly negative impacts on Black and brown Americans.

Ultimately, the paper challenges the dominant literature and conventional wisdom that drive the pursuit of higher education, concluding that student debt exacerbates income inequality and threatens the broader economy’s stability. It is crucial to understand these dynamics of student debt, labor markets, and race, as well as how they interact and intersect, in order to inform better public policy that lifts students up, rather than maintain a system that holds them back. 

With the Higher Education Act overdue for reauthorization, it is inevitable that policymakers will be rewriting federal higher education policy in the next few years. But new policies based on the same flawed assumptions about the individual and economic benefits of debt-financed education will only continue to fuel credentialization, deepen our country’s student debt crisis, and exacerbate racial and economic inequality

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Julie Margetta Morgan is a Fellow at the Roosevelt Institute. Julie most recently served as a Senior Program Officer at the Bill and Melinda Gates Foundation. Prior to joining Gates, she was a senior policy advisor to Senator Elizabeth Warren, where she was responsible for developing and implementing policy proposals on a range of education issues, including student loan refinancing, college affordability, and student loan servicing reform. She previously served as Director of Postsecondary Access and Success at the Center for American Progress, and she holds a Ph.D. in higher education and a J.D. from Boston College.

Marshall Steinbaum is a Fellow and Research Director at the Roosevelt Institute, where he researches market power and inequality. He works on tax policy, antitrust and competition policy, and the labor market, in particular declining entrepreneurship and labor mobility as well as credentialization and its result: the student debt crisis. He is a co-editor of After Piketty: The Agenda for Economics and Inequality (Harvard University Press 2017), and his work has appeared in Democracy, Boston Review, New Republic, American Prospect, Industrial and Labor Relations Review, and ProMarket. He has a Ph.D. in economics from the University of Chicago.