Disproportionately Impacted: Closing the Racial Wealth Gap through Student Loan Cancellation, Payment Reforms, and Investment in College Affordability

By J Geiman & Alpha S. Taylor

President Biden ran on an agenda that included student debt relief for the more than 44 million borrowers who collectively owe over $1.6 trillion. This would be in line with the Biden Administration’s racial equity goals, as it would include relief for the millions of Black borrowers who are disproportionately affected by the student loan crisis. While the administration has made progress in providing limited cancellation to a small percentage of borrowers, most are still waiting for relief as the president considers potential models for broader cancellation. Regardless of what the administration decides with respect to cancellation, much remains to be done to reform the college funding and student loan servicing systems to end the student debt crisis.

The student debt crisis is particularly dire for Black borrowers. Black degree-seekers are more likely to take out student loans to pay for higher education than white students, and they carry the largest average student loan debt of all racial demographics in the nation. Additionally, workforce inequities leave college-educated Black workers with higher rates of un- and underemployment and lower earnings than similarly educated white peers, making it even harder for these borrowers to escape from the burden of student loan debt. Black students are also more likely to leave college without a degree, leaving them saddled with student loan debt without the benefits of a degree. As a result, the higher education system has not served as a great equalizer to provide populations with lower wealth and lower incomes a path for socioeconomic mobility. Instead, like all other major U.S. institutions, the higher education system has perpetuated and exacerbated existing inequities, particularly when it comes to race.

The COVID-19 pandemic has created even more barriers to both postsecondary success and workers’ economic stability, and Black Americans are still struggling to make a full economic recovery. The pause on student loan payments has temporarily eased the financial stress of student debt for millions of borrowers during the public health emergency. However, this relief is only temporary. Without broad-based cancellation and reforms to the student loan and federal student aid systems, the U.S. higher education system will continue to hinder, rather than support, Black Americans’ economic mobility.

In this paper, the Center for Law and Social Policy (CLASP) and the National Consumer Law Center (NCLC) explore the disproportionate impact of student debt on Black borrowers. We also make recommendations to address the dual student loan and college affordability crises through federal policies and executive action. These steps include administrative action to extend the student loan payment pause; ensure a smooth transition of loan accounts to new servicers; provide increased protections for borrowers, particularly those who are victims of predatory lending and for-profit colleges; improve existing repayment options, including Income-Driven Repayment (IDR); and invest in college affordability through federal grants like the Pell Grant, a federal free community college program, and support for student basic needs.

>> Read the full report here