Canceling student debt would not only address the massive racial inequalities among borrowers, but also “jump-start” the economy, according to a Democratic lawmaker.
“There’s unrest in the lives of Black Americans, and that’s because of centuries of disproportionate hate, hurt, and harm that have been foisted on to Black Americans,” Rep. Ayanna Pressley (D-MA) told Yahoo Finance. “And so we’re at a culture shift moment — but we need a power shift moment.”
Pressley has supported cancelling student debt to help level racial inequalities. “Black student borrowers borrow, and default more than anyone else because of our inability to build generational wealth,” she said. “I see that as a racial justice issue.”
There would be a macroeconomic benefit, she added: “The average borrower has $30,000 worth of debt — [cancelling that] will jump-start the economy.”
‘Student debt is increasingly a racial and economic justice issue’
A recent report by the Federal Reserve Bank of New York found that borrowers living in majority Black and majority Hispanic zip codes are “much more likely to default on student debt by age 30.” Two-year college borrowers who reside in majority Black areas defaulted almost twice as much as those in majority white areas.
Nationwide, default rates are the highest for those who live in majority Black zip codes, both for graduates of two-year and four-year schools.
A recent report by the Student Borrower Protection Center (SBPC) went deeper into borrower behavior in Philadelphia, New York City, San Francisco, and Washington, D.C., to determine how they manage their debt.
The researchers found that despite living only a few blocks apart, borrowers of color struggle a lot more with their student debt. When added to existing inequities, the strain of student loans is “reinforcing social stratification and segregation across neighborhoods,” the report stated.
For instance, in San Francisco, the rate of student loan delinquency in neighborhoods with the largest minority populations is over 7.5 times higher than areas with majority-white populations. And the three neighborhoods where student loans saw a delinquency rate lower than 5% are at least 75% white, the authors noted.
The data “highlights how student debt is increasingly a racial and economic justice issue,” SBPC stated in an email to Yahoo Finance.
Democrats have consistently pushed for student debt cancellation
Pressley has been active in pushing Congress to consider student debt cancellation.
She previously introduced a bill with colleague Rep. Ilhan Omar (D-MN) to cancel $30,000 in outstanding student loan debt back in March, right as the coronavirus began to hit the U.S. The senate Democrats proposed cancelling $10,000 instead. The CARES Act, passed in March, didn’t offer either.
Democrats then pushed for $10,000 in cancellation for “economically distressed borrowers” in the stimulus package that was meant to follow up the CARES Act, the Health and Economic Recovery Omnibus Emergency Solutions Act, or HEROES Act. That didn’t materialize either.
But that push hasn’t fizzled out yet: A recent proposal produced by a task force comprised of supporters of presidential candidate Joe Biden and Sen. Bernie Sanders (I-VT) has pushed for forgiveness for certain borrowers in specific situations, as detailed here.
In the meantime, consumer advocacy group Student Debt Crisis’ petition to Sen. Elizabeth Warren (D-MA) to urge congress to cancel student debt reached 1.2 million signatures this week.
"Millions of borrowers were already having a hard time with their loans before COVID-19; the financial disaster of the pandemic has made their situation exponentially worse,” Natalia Abrams, executive director of Student Debt Crisis, said in a statement. “[A]t a time when our nation is turning belated attention to systemic racism, it’s vital to remember that Black borrowers have a disproportionately heavy and unmanageable student debt burden.”
She added: “The full and complete cancellation of debt is as much about long-overdue racial justice as it is about stimulating the economy.”
The impact of a cancellation has been hotly debated on both sides, but some groups — like Moody’s Investor Service — consider it to be one way to boost the economy.
Moody’s said that forgiving student loans could also stimulate the economy in the near term by serving as a “tax-cut-like stimulus.”
“A partial or total student debt cancellation would increase households' disposable income by the amount of debt service saved,” the report stated. “Economic activity would in turn be boosted by the portion of these debt service savings channeled into other current and investment spending. At the same time, some households could potentially increase spending beyond their debt service savings if their improved net financial wealth entices them to save less and spend more overall, yielding even greater stimulus to the economy.”
Kristin Myers contributed to this story.
Aarthi Swaminathan is a reporter for Yahoo Finance covering education. If you have a story idea, or would like to share how you are dealing with your student loan debt, reach out to her at firstname.lastname@example.org