Fenaba Addo is an associate professor of consumer science at the University of Wisconsin-Madison and Ashley Harrington is the federal advocate at the Center for Responsible Lending.
The debate round canceling the student debt is central to the aftermath of the presidential election, and President-elect Biden should take care of that substantial cancellation on his first day of work.
This crisis has reached and is about $ 1.7 trillion disproportionate influence Black students and students of color. Substantial, general student debt relief would help vulnerable students get back on their feet and create a path to financial freedom.
American borrowers need cancellation, and they need it now.
An ‘important step forward’
The truth is, measuring the benefits of cancellation based on income alone, as some opponents have recently advocated, dangerously ignores the welfare impact of debt.
Given the extreme and persistent racial wealth gap, white and black borrowers with comparable incomes are affected by student debt differently. White borrowers typically have significantly more wealth and thus struggle less whether they bear the same or more student debt than their black counterparts.
Black borrowers bear this burden disproportionately among each income bracket. This wide inequality is reason enough to cancel debts that should never have been amassed in the first place.
Historically, black students were either denied or restricted access to most higher education institutions. After passage of the Civil Rights Act of 1964 and the Higher Education Act of 1965 (HEA), higher education became more accessible to black and low-income students.
But the pledge to support all low-income students on scholarships was soon broken and gave way to the debt-funded system we have today. We now have a system that denies many black households the means to achieve financial prosperity through higher education, which has long been regarded as one of the ladders to the safety of the American middle class.
Just cutting student debt won’t close the racial wealth gap, but that shouldn’t stop us from taking this important step forward. Leaving black borrowers paralyzed by student debt certainly contributes to its survival and prevents black and latino borrowers from building wealth.
Thus, opposition to cancellation becomes just another in a long list of cases of ugly opposition to policies that would improve the lives of black Americans.
‘The average black borrower still owes 95% of the original balance’
Arguments suggesting that income-driven repayment (IDR) would bring more benefits to middle-income borrowers than debt forgiveness ignore the well-documented issues with the current IDR system.
Borrowers find it difficult to navigate plans with different structures and eligibility requirements, and servicers make mistakes and maximize profits by poorly serving borrowers.
In response to a FOIA request from the National Consumer Law Center, the Department of Education stated that fewer than 20 borrowers had obtained IDR waiver in November 2019. However, tens of thousands should have been eligible in the past five years.
Years of structural racism and persistent discrimination in the labor and credit markets are bringing the average black borrower still 95% due of the original balance of their student debt after 20 years of repayment. Many borrowers find that their balance increases over time.
IDR is an inadequate solution that will put borrowers in debt for a lifetime, steal their retirement and get parents to pay off their children’s and their own debt, certainly not a standard we should strive for.
‘Their relief is long gone’
Canceling a significant amount of student debt benefits all Americans, including in trouble with borrowers who will forgive more of their loan balance.
Dollars now going to pay off student debt will go towards buying homes, starting families, setting up businesses and restarting the economy. Increased consumer spending will keep our businesses alive in these precarious times.
Federal and state policies triggered the student debt crisis. Now is the time to recognize those flaws and focus on restoring a system that simply won’t work for low-income, low-wealth people.
Black Americans, low-income people, Latinos and other color borrowers, women and veterans have all been denied the way to the financial security and prosperity that would be possible with a college education. Their relief is long gone.
We are, of course, not in favor of increasing inequality. However, we believe that this country has the resources and the ability to find creative policy solutions that will combat growing inequality and relieve millions of borrowers from their debts.
Significant student debt cancellation is perhaps the most progressive and productive action a new president can take in an unstable economy. President-elect Biden must keep his promise to cancel student debt for the 45 million Americans who bear this burden on day one.