As conversations continue over a potential framework for student loan cancellation through executive authority, policy experts continue to offer analysis on the implications of such a move from the Biden administration, with a new paper detailing the ways in which debt forgiveness will close the racial wealth gap and help fix the broken repayment system.
The latest report to examine the potential impact of debt cancellation, published by the Center for Law and Social Policy (CLASP) and the National Consumer Law Center (NCLC) last week, further explores the disproportionate impact of student debt on Black borrowers.
In the paper, CLASP and NCLC provided a timeline detailing how federal investment in higher education has not kept pace with rising college costs, and how a growing number of professions requiring a degree as a prerequisite for employment have forced many borrowers to take on debt in order to start out their careers.
"Postsecondary education has never been more necessary for employment, yet the cost of a degree has never been higher," the report finds. "This incentivizes large numbers of students — and families, through Parent PLUS loans — to borrow exorbitant amounts in student loans to finance a degree that oftentimes is simply a minimum requirement for employment rather than an engine of socioeconomic mobility."
By detailing the ways in which past racist financial policies like redlining have burdened Black families in their effort to accrue generational wealth, the paper demonstrates how families have been forced to take on greater debt burdens to gain access to higher education.
"The disproportionate amount of debt taken on by Black borrowers and their families would be concerning even if Black graduates saw equal earning and employment outcomes," CLASP and NCLC write. "However, even at the same levels of educational attainment, Black Americans face higher rates of unemployment and lower earnings than white populations. Black 4-year college graduates saw average yearly earnings of $63,776 in 2020, while similarly educated white peers brought home $80,092."
The report also acknowledges that canceling student loan debt would, in fact, benefit all borrowers, but underscored that it would also make acute inroads in addressing the racial wealth gap by alleviating the financial burden the debt imposes on Black households that have been harmed by the financial system.
"Black borrowers need cancellation that will reduce their debt-to-income ratio so that it is easier for them to qualify for and build wealth through homeownership," CLASP and NCLC write. "They need cancellation to boost their credit scores so that they can obtain loans to start small businesses and engage in other forms of entrepreneurship. In addition, Black borrowers in default and subject to forced collection action, such as wage garnishment and Treasury offsets, need cancellation that will remove them from default and allow them to take more money home to their families."
In addition to broad-scale forgiveness, the paper calls on the administration to continue to extend the payment pause, smoothly transition borrowers to new servicers, increase protections for borrowers who attend for-profit institutions, strengthen repayment options, and make key investments in federal initiatives focused on affordability.
"All too often, the narrative around college education tells Black Americans that if they work hard and get their degree, they will be able to individually lift themselves and their families out of financial insecurity," CLASP and NCLC write. "However, the generations-old racial wealth gap, high cost of college attendance, and inequitable employment opportunities for Black workers only compound the barriers to their economic stability."
Publication Date: 6/14/2022