The burden of student loan debt is at a crisis level in the United States. And students of color are bearing the brunt of this crushing weight, which impacts countless aspects of their lives — and exacerbates an already staggering racial wealth gap that was further widened by the COVID-19 pandemic. Forgiving student loans is a necessary step toward closing this gap, which is critical for advancing racial and economic justice in the United States.
Borrowers collectively owe more than $1.75 trillion in total student loan debt, with the average borrower owing $28,950 individually. America’s racial wealth gap means that the student debt burden falls disproportionately on students of color and their families, with long-term implications.
The racial wealth gap describes the significant difference in the wealth held by white people and people of color in the United States. This gap is striking and staggering, encapsulated by the fact that Black households have about seven cents on the dollar compared to white households, per a 2019 report from the Legal Defense Fund (LDF)’s Thurgood Marshall Institute.
This stark gap stems from years of entrenched, structural racism. “Racial wealth inequalities in the United States today are a direct result of centuries of racialized, exploitative social and legal structures — policies that set the foundation for a skewed distribution of land, labor, political power, and resource ownership by race. These patterns continue today and are evident in Black-white racial disparities in net worth, known as the Black-white racial wealth gap,” TMI’s report explained. These wealth disparities then contribute to significant disparities in health, education, income, and more.
As students of color begin college, the racial wealth gap often worsens. Because they have fewer socioeconomic resources — less parental and generational wealth, less home equity to finance a loan, and fewer savings — students of color are forced to take on more debt to cover tuition and living expenses to make up for the wealth gap between them and their white peers. Data from the U.S. Department of Education indicates that around 86% of Black students take out student loan debt compared with around only 68% percent of white students. Black students also typically owe more than white students. Black borrowers take out an average of $39,500 in student loans, while white students borrow an average of $29,900.
The racial gap in student loan debt doesn’t just have short-term impacts on students of color. It also contributes to long-term disparities that further intensify the racial wealth gap and diminish educational and socioeconomic equity throughout students’ lives — and even for generations to come. In fact, a Brookings Institution study found that the Black-white disparity in student loan debt more than tripled just four years after graduation, further eroding Black students’ ability to build wealth.
Student loan debt also has long-lasting effects on borrowers’ mental health and capacity to thrive. A 2022 ELVTR survey on student loan debt revealed that borrowers experience adverse mental health conditions as a result of their debt: 56% reported experiencing anxiety, while 32% reported depression, 20% reported insomnia, and 17% reported panic attacks. Additionally, over 80% of borrowers said that their student loan debt has delayed a major life event for them. With a higher loan burden, Black borrowers and those from other communities of color undoubtedly disproportionately experience both tangible and intangible detrimental consequences of student debt.
Furthermore, student loan debt can impact wealth beyond just that of the individual student borrower. A 2017 study on parental loans by public health researchers Katrina Walsemann and Jennifer Ailshire found that Black parents are more likely to have child-related student debt than white parents. “Black parents and parents with more education, higher income, and higher net worth were more likely to report child-related educational debt than white parents and parents with no degree, low-income, or negative net worth,” the study noted.
Student loans have been described as a “debt trap for Black borrowers,” per a 2022 CNBC interview with sociologist Charlie Eaton. Forgiving this debt would constitute a major, critical step toward closing the racial wealth gap. In a 2020 paper for the Roosevelt Institute, a team of researchers found that “student debt relief would substantially improve the financial security of Black and white borrower households and have profound impacts for the asset security of Black households overall, who would experience substantial relative wealth gains.” Additionally, they noted that “greater student debt relief leads directly to greater benefits” for both Black and white borrowers.
In August 2022, the Biden Administration released a plan to forgive some student loan debt, cancelling $10,000 in student debt for American borrowers earning $125,000 or less per year, and an additional $10,000 in debt for Pell Grant recipients. The policy also added measures to make loan repayment less burdensome, like one allowing individuals with undergraduate loans to cap their monthly repayment at 5% of their income.
LDF signed on to an amicus brief supporting administration’s student debt forgiveness plan in January 2023. The brief particularly highlighted how the COVID-19 pandemic further exacerbated the racial wealth gap — and explained why student loan forgiveness is essential for countering the pandemic’s devastating impact on members of communities of color.
“… Targeted debt-relief is critical to ensure that millions of lower-income borrowers — including millions of borrowers of color — are not placed worse financial position due to the pandemic. Absent any relief, Black and Latinx borrowers are at a heightened risk of delinquency and default because of the … racial inequities in wealth, education, healthcare, and employment exacerbated by COVID-19,” the brief emphasized. “The foreseeable wave of delinquency and default would devastate individual lives and communities, with particularized harms for historically underserved groups: irrevocably damaging credit, garnishing wages that families badly need for basic necessities, and foreclosing additional educational opportunities and economic mobility. [The Biden administration’s] plan will meaningfully ensure that millions of affected borrowers are not economically debilitated by the protracted and pernicious harms of COVID-19 that have thrown them into unprecedented levels of financial distress, including borrowers of color who bear a disproportionate share of the financial burdens arising from the pandemic.”
Notably, though, while the forgiveness plan is an important step in unburdening student borrowers, it is just one part of a more holistic solution that is needed. As LDF noted at the time of its release, the Biden administration’s plan would divert over 60% of its debt relief to white borrowers and only 25% to Black borrowers, despite the disproportionate level of debt held by Black students.
The Biden Administration’s forgiveness plan “still leaves many Black graduates burdened with substantial debt,” says Amalea Smirniotopoulos, LDF Senior Policy Counsel, in a recent interview for this piece. “We need to pursue more holistic solutions to increase access to affordable higher education and degree completion for Black students, ensure equitable pay and employment opportunities for Black graduates, and eliminate other barriers to building Black wealth, such as appraisal bias.”
To ensure that broad loan cancellation advances equity and supports all borrowers, especially historically marginalized communities, student loan forgiveness plans must be robust and comprehensive. Prior to the release of the Biden administration’s plan, LDF, as part of a coalition of civil rights organizations, released a series of “Civil Rights Principles for Student Loan Debt Cancellation” that are illustrative of this approach. These principles call for immediate cancellation of $50,000 of student debt per borrower, extending relief to all borrowers for every type of degree and regardless of institution sector, and guarding against negative credit implications of debt forgiveness.
Shortly after the Biden administration’s forgiveness plan was released, the administration faced a series of legal challenges followed by several court rulings that stopped the plan from going into effect as it made its way through the court system. The U.S. Supreme Court heard oral arguments in two cases related to the loan forgiveness plan in February 2023, and a decision is expected by June.
One possible outcome is that the Court could invalidate Biden’s loan forgiveness plan entirely.
Any regression in student loan forgiveness initiatives ultimately disproportionately harms students of color. Forgiving student loan debt would allow Black and Latinx borrowers to experience the economic advantages of going to college without enduring higher economic barriers to entry than their white peers. And it would help free them of high-interest rates and predatory lending that saddles them with even more debt than they originally took out to fund their education.
“With more student debt and lower earnings, Black students struggle to build wealth. These issues are the result of longstanding structural barriers that have prevented Black people from accessing equal employment opportunities and building generational equity,” adds Smirniotopoulos. “Student loan forgiveness can reduce the disparate debt burdens Black students face, allowing them to invest in their education, a home, and their families.”
Ultimately, student loan forgiveness will allow people of color to build wealth over time, helping to close the racial wealth gap that has persisted for the whole of this country’s history. Achieving racial justice requires eliminating the racial wealth gap, and student debt forgiveness is a necessary step in that direction.
All borrowers, including Direct Loan, Federal Family Education Loan (FFEL), graduate, and Parent PLUS borrowers, must be eligible for cancellation without regard to current borrower income, default status, or repayment plan. Steps should also be taken to provide relief for private student loan borrowers and to provide stronger protections against predatory student financing products.
Borrowers who attended public, private, and for-profit institutions must be eligible for cancellation. Extending cancellation only to students of public and private institutions that serve the highest concentrations of Black, brown, and low-income students, for example, would still unfairly leave out borrowers from those same communities solely because they attended a different type of institution.
Obtaining much-needed debt relief must be a simple process to navigate. The process should be automatic while allowing borrowers the right to opt-out if needed, instead of requiring individuals to opt-in.
Debt relief must alleviate, not exacerbate, racial wealth disparities and ensure that borrowers can move forward with their lives by accessing safe and affordable credit products, capital, and other resources. Cancellation should result in positive credit implications.
Policymakers must use debt cancellation as an opportunity to create a better system that includes debt-free college, reforms to income-based repayment to make it truly affordable and workable, investments in institutions that best serve students of color, and accountability for predatory for-profit institutions that prey on marginalized communities.
Published in 2019, this TMI report provides a look at the Black-white racial wealth gap in the United States today, explains the historical foundations and contemporary drivers of the gap, and offers a lens for developing and assessing policies to address these structural disparities.
