Fenaba Addo is an associate professor of consumer science at the University of Wisconsin-Madison and Ashley Harrington is the federal advocacy director at the Center for Responsible Lending.
The debate around canceling student debt has been front and center in the wake of the presidential election, and President-elect Biden should provide substantial cancellation on his first day in office.
This crisis has reached roughly $1.7 trillion and is disproportionately affecting Black students and students of color. Significant, across-the-board student debt relief would help vulnerable students get back on their feet and create a pathway to financial freedom.
American borrowers need cancellation, and they need it now.
An ‘important step forward’
The truth is that measuring the benefits of cancellation based on income alone, which some opponents have argued in favor of recently, dangerously ignores the wealth ramifications of debt.
Given the extreme and persistent racial wealth gap, white and Black borrowers with similar incomes are affected by student debt differently. White borrowers typically have substantially more wealth and thus struggle less whether they carry the same or more student debt than their Black counterparts.
Black borrowers disproportionately shoulder this burden at every income bracket. This stark inequity is reason enough to cancel debt that never should have been amassed in the first place.
Historically, Black students were either denied or received limited access to most institutions of higher education. 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 promise to provide grant-based aid for all low-income students was soon broken, giving way to the debt-financed system we have today. We now have a system that denies many Black households the means of achieving financial prosperity through higher education, which has long been considered one of the ladders to American middle-class security.
Cancelling student debt alone will not close the racial wealth gap, but that should not prevent us from taking this important step forward. Leaving Black borrowers crippled with student debt certainly contributes to its persistence and prevents Black and Latino borrowers from building wealth.
Thus, resistance to cancellation becomes just another in a long list of instances 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 provide more benefits to middle-income borrowers than debt cancellation ignore the well-documented problems with the current IDR system.
Borrowers find it difficult to navigate plans with different structures and eligibility requirements, and servicers make errors and maximize their profits by serving borrowers poorly.
In response to a FOIA request from the National Consumer Law Center, the Department of Education stated that less than 20 borrowers had achieved IDR forgiveness as of November 2019. However, tens of thousands should have been eligible over the past five years.
Because of years of structural racism and persistent labor market and credit market discrimination, the average Black borrower still owes 95% of the original balance of their student debt after 20 years in repayment. Many borrowers actually find their balances increasing over time.
IDR is an inadequate solution that will leave borrowers with a lifetime of debt, stealing retirement, and keeping parents paying off their children’s debt as well as their own, certainly not a standard we should aspire to.
‘Their relief is long overdue’
Cancellation of a substantial amount of student debt will benefit all Americans, including struggling borrowers who will have more of their loan balances cancelled.
Dollars that are now going to pay student debt will go toward buying homes, starting families, creating businesses, and restarting the economy. Increased consumer spending will help keep our businesses alive during these precarious times.
Federal and state policies created the student debt crisis. Now is the time to acknowledge those failings and focus on rehabilitating a system that is simply not working for low-income and low-wealth people.
Black Americans, low-income individuals, Latinos and other borrowers of color, women, and veterans have all been denied the path to the financial security and prosperity that is supposed be possible with a college education. Their relief is long overdue.
We are not, of course, in support of increasing inequality. However, we believe that this country has the resources and the capability to find creative policy solutions that will both counteract widening inequality and relieve millions of borrowers of their debt.
Substantial student debt cancellation is perhaps the most progressive and productive single action a new president in an unstable economy can take. President-elect Biden must deliver on his promise to cancel student debt for the 45 million Americans who carry this burden on Day One.