Canceling student loans could narrow racial wealth gap, advocates say
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A college education was supposed to help close the wealth gap for black Americans.
Yet researchers are finding the opposite to be true, thanks to student loan debt.
Median wealth of black families is less than 15% that of white families, says Federal Reserve 2019 Consumer Finance Survey. Among student borrowers, this gap is even more pronounced, research shows.
The wealth of black borrowers is about 5% of the wealth of white borrowers, according to an article by Raphael Charron-Chenier, Louise Seamster, Thomas M. Shapiro and Laura Sullivan titled “A Path to Racial Equity: Student Debt Cancellation Policy Designs.”
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“Because education is funded by debt, our education doesn’t have the same effect,” said Seamster, assistant professor of sociology and criminology and African American studies at the University of Iowa.
“It doesn’t drive wealth for black families and, in fact, it actually exacerbates wealth inequality.”
“Student debt is really a debt trap for black borrowers.”
Higher education is increasingly expensive. Because black households tend to have less wealth, more of them have to borrow money to get a degree — and the amounts they borrow are larger than those of their white counterparts, a explained Charron-Chenier, a sociologist and assistant professor at Arizona State University. .
About 24% of black adults say they have federal student loan debt, compared to 14% of white adults, according to a CNBC + Acorn’s Invest in You Student loan survey conducted by Momentive.
Black college graduates owe an average of $7,400 more than their white peers by the time they graduate, according to a report by Brookings Institution found. Four years after graduation, they owe an average of $52,726, compared with $28,006 for the average white college graduate, according to the report, which included non-borrowers in the average.
Meanwhile, some 66% of black borrowers owe more than they originally borrowed 12 years after starting college, another analysis found.
“It’s because the interest accrued on their loans is more than the payments they can afford on their loans,” said Charlie Eaton, an assistant professor of sociology at the University of California, Merced, who participated in the study. ‘to analyse.
“So student debt is really a debt trap for black borrowers.”
Impact of student loan cancellation on the wealth gap
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Canceling student debt can impact the racial wealth gap, though it’s not the only solution to a complex problem, advocates say. Instead, it’s a first step to addressing it, they said.
Canceling $50,000 of student debt for households with incomes below $100,000 would increase the wealth of black borrowers to 33% of the wealth of white borrowers, up from 5% previously, according to “A Pathway to Racial Equity “. Raising it to $75,000 in discount would take it to 42%, according to the report.
“While the amount itself doesn’t have a huge immediate impact on the racial wealth gap, it can help people at a really crucial time,” Charron-Chenier said.
It is during this post-college period that young adults find employment and perhaps buy a home. Yet student debt prevents many people from owning a home.
“The racial wealth gap is not exclusively, but very strongly, driven by people’s ability to simply buy a home and retain its value,” Charron-Chenier pointed out.
Granted, forgiving student loans isn’t the cure for the intergenerational wealth gap, said Nicole Smith, research professor and chief economist at the Georgetown University Center on Education and the Workforce.
“The real intergenerational racial wealth gap that we see in American society took generations to create, and it will absolutely take generations to remove it as well,” she said.
“Even if we were to magically erase that burden from every person of color, they’re still going to be leaps and bounds behind the rest of society because it’s just such a stark difference that has been compounded by structural inequality. , through racial inequality, through racial injustice, for decades.”
U.S. President Joe Biden delivers remarks during the AFL-CIO’s 29th Quadrennial Constitutional Convention at the Pennsylvania Convention Center in Philadelphia, U.S., June 14, 2022.
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For the NAACP, $10,000 is not enough.
“It’s like throwing a bucket of ice on a wildfire,” NAACP President and CEO Derrick Johnson told CNBC recently. “The cancellation must be a minimum of $50,000.”
Some Democrats, including Sen. Chuck Schumer of New York and Sen. Elizabeth Warren of Massachusetts, are also asking for at least $50,000 in pardons.
Opponents of canceling student loans argue that debt forgiveness would add up to $1.7 trillion to the national debt, further fueling inflation. Several Republican senators introduced legislation in May to ban the Biden administration from canceling student loan debt.
“This decision would not only be unfair to those who have already paid off their loans or decided to pursue alternative education paths, but it would be extremely inflationary in an era of already historic inflation,” said Sen. Mitt Romney, R -Utah, in a statement.
Opponents also argue that forgiveness would worsen inequality, pointing to another Brookings Institution Report this shows that a third of all student debt is owed by the richest 20% and only 8% is owed by the poorest 20%.
The best way to close racial and socioeconomic wealth gaps includes grants and loans to colleges, income-based repayment plans, and targeted borrower aid, wrote Adam Looney of the Brookings Institution. .
While some advocates argue general relief is best, Georgetown University’s Smith agrees there should be some parameters, perhaps around income and occupation.
“It has to be measured and decisive,” she said.
Once the student debt issue is resolved, it will allow the focus to be on free and affordable college — so the cycle doesn’t continue, said Eaton of the University of California.
“Cancelling student debt will alert Congress that now is the time to create debt-free college programs so that students, including black students, don’t have to borrow for college,” he said. -he declares.
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