Student Debt Is a Racial Equity Issue. Here’s How Mass Debt Relief Can Address It.

In August, the Roosevelt Institute published a working paper, “Student Debt Forgiveness Options: Implications for Policy and Racial Equity,” by Raphaël Charron-Chénier, Louise Seamster, Tom Shapiro, and Laura Sullivan. Drawing on data from the Survey of Consumer Finances (SCF), that paper made the case for relieving up to $50,000 in student debt for all borrowers. 

The authors have updated their findings based on new SCF data. Their update shows how rapidly student debt levels have increased in only three years, especially for Black borrowers, and brings new urgency to finding a solution to the student debt crisis. Undoubtedly, these debt levels have risen due to the pandemic, adding increased economic strains to already vulnerable households and to the economy at large. 

Before the pandemic, the $1.67 trillion in outstanding—and rising—student debt already threatened the economy. Now, amid dual health and economic crises, student debt relief can be an effective policy tool to help achieve economic recovery. 

Tellingly, student debt cancellation proposals are now becoming mainstream among politicians. For example, The Student Debt Emergency Relief Act proposed to relieve up to $30,000 in debt, and more recently, Sens. Elizabeth Warren (D-MA) and Chuck Schumer (D-NY) introduced a resolution calling for the next president to offer widespread debt relief up to $50,000. 

The updated analysis from Charron-Chénier et. al. suggests that $50,000 is now too low a level of debt forgiveness to achieve racial equity goals. Climbing student debt over the past decade and now high unemployment have created a major drag to an economic recovery, particularly for racially and economically marginalized households who do not have the liquidity to weather such economic shocks.  

Any student debt forgiveness policy must address how systemic racism has intersected with our debt-financed higher education system to disadvantage borrowers of color. Predatory lending and federal student loan policies have exacerbated the racial wealth gap. Between 2000 and 2018, the Black-white wage gap for young graduates with bachelor’s degrees grew by 57 percent, driven by student debt. During the same 18 years, the median student debt for white borrowers nearly doubled from $12,000 to $23,000, while for Black borrowers, it quadrupled, increasing from around $7,000 to $30,000. 

Further, persistent wage and employment discrimination means Black students do not experience the same rate of return on higher education as their white peers. Twenty years after graduating, the median white borrower had paid off 94 percent of their student debt, while the median Black borrower still owed 95 percent of their student debt. COVID-19 has only heightened these disparities, with the September 2020 unemployment rate at 12.1 percent for Black Americans and 10.3  percent for Latinx Americans, compared with just 7.0 percent for white Americans. 

Student debt cancellation can put money back into the pockets of Americans suffering in the COVID-19 economy and help right the wrongs exacerbated by our debt-financed higher education system. To craft policies that do this, we need to understand how different levels of debt cancellation will affect different demographic groups. 

Charron-Chénier et. al’s most recent data show an exponential increase in the burden of student debt, particularly among Black and Latinx borrowers. At 2016 levels, $50,000 in debt cancellation would alleviate the debt burden for 81 percent of Black households, but just three years later, in 2019, this decreased to 73 percent of Black households. With 2016 data, $50,000 in forgiveness instantly increased overall Black wealth by 40 percent—now it’s just 34 percent at that forgiveness level. Cancelling student debt is by no means the sole solution to closing the racial wealth gap. However, data show that student debt poses a significant burden particularly for Black borrowers, suggesting that student debt forgiveness can alleviate the financial harms caused by growing debt burdens.  

Given this new data, the authors suggest that $75,000 in student debt cancellation would be a more appropriate level to aim for. A broad cancellation of $75,000 in student loans would provide complete forgiveness to almost 90 percent of Latinx households and about 80 percent of Black and white households with student debt. Cancellation policies beyond $75,000 have similar impacts on all demographic groups, with benefits plateauing for Black and Latinx borrowers beyond this level. 

While student debt relief is not the only answer to an increasingly costly higher education system, or a sufficient solution to the racial wealth gap, the new SCF data reiterate that student debt relief is a much-needed policy lever in the midst of an economic crisis.