Over the past 17 years, the amount of outstanding student loan debt in the U.S. has increased more than sixfold, from less than $240 billion to $1.46 trillion. As the value of student loan debt has increased, so has the longevity of the loans. More than 7 million Americans over the age of 50 were still paying off their student loans in 2017, as compared to less than 5 million in 2007. With college tuition continuing to outpace inflation year after year, this trajectory is set to continue.
In response to this crisis, almost all of the Democratic presidential candidates have proposed some sort of student debt forgiveness policy. For example, Sen. Elizabeth Warren, D-Mass., has proposed cancelling up to $50,000 in student loan debt for over 40 million Americans who qualify based on their income. More radically, Sen. Bernie Sanders, I-Vt., has proposed forgiving all student loan debt, even for the very rich. While many of the other candidates’ plans are less ambitious than those of Warren and Sanders, all remaining candidates have identified student loan debt alleviation as an important issue.
These policies are much more than “handouts” to individuals who took on more debt than they could possibly repay. While the causes of the student loan crisis are complex, it’s undeniable that government policies, such as the deregulation of for-profit colleges and the utilization of private student loan servicers, have greatly exacerbated the issue. Given the federal government’s role in causing this crisis, it has a responsibility to address its consequences.
Moreover, the negative consequences of excessive student debt affect all Americans, not just debtors. Studies have shown that excessive student debt dampens wealth accumulation, hampers the growth of small businesses and pushes individuals out of lower-paying public service professions. The explanation here is simple: College graduates with large amounts of student loan debt are forced to take jobs that maximize their ability to meet their debt payments, reducing their ability to take risks or invest in long-term careers. Forgiving the existing pool of student debt is therefore in the interest of all Americans.
While the Democratic candidates should be praised for their ambitious plans to tackle this issue, each of their proposals fail to address the way that the student loan crisis has disproportionately affected people of color. Data released by the Department of Education in 2017 revealed that the student debt crisis has affected Black and white Americans significantly differently. Most shockingly, the data shows that, 12 years after taking out student loans, the average African American borrower owes 12 percent more than they initially borrowed. In contrast, the average white borrower is three times more likely to have paid off their debt at that same 12-year mark.
These numbers aren’t simply reflective of the correlation between race and other factors, such as income and geography; they reflect additional challenges that Black students face at every stage of their loan’s life cycle. Lawsuits against for-profit colleges that have defrauded their students have revealed that these businesses intentionally target minority students through their branding. For example, Ashford University, a largely online for-profit university with a 16 percent graduation rate, bragged in a 2018 press release that it had been recognized as a “Top 100 Minority Degree Producer.”
Moreover, Black borrowers may be pushed into paying higher interest rates on their student loans than their white peers. While relatively little is known about discrimination in student loan markets, many studies have found that Black borrowers are discriminated against when they apply for credit cards, auto loans and mortgages. For example, one study found that African Americans are twice as likely as whites with similar risk profiles to be charged a subjective “markup” over their base interest rate on auto loans.
However, emerging evidence shows that the largest divergence between Black and white student debt burden appears after college. A Brookings Institution study found that, at graduation, Black students owe $7,400 more than their white counterparts, a number that balloons to over $25,000 in the next four years. The study found that a quarter of this difference was attributable to lower repayment rates, which partly reflects the large degree of racial discrimination present in the labor market. However, most of the postgraduate increase in the Black-white debt gap stemmed from African Americans attending for-profit graduate schools at higher rates, suggesting that for-profit colleges also target minorities for graduate school enrollment.
Each Democratic presidential candidate has attempted to position himself or herself as an advocate for people of color. Yet, no Democratic candidate has addressed any of these widespread issues in their student debt policies thus far. If Democrats are to truly enact social justice, they need to engage with the ways that every policy is filtered through a structure of intentional and unintentional racial discrimination. The existing plans, which only forgive loans based on income and attempt to control costs, will simply leave this structure intact.
Jared Stolove can be reached at jstolove@umich.edu.