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 Nation­al Con­sumer Law Cen­ter and the Cen­ter for Law and Social Pol­i­cy, grantees of the Annie E. Casey Foun­da­tion, spon­sored the report.

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:

1. 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%.
2. 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.
3. 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.

Learn More About Stu­dent Loan Debt and Bor­row­ers of Color