Cancelling Student Debt does not bridge the Black/white Wealth Divide
There are many reasons one might want to eliminate all student debt or a substantial part of student debt but bridging the racial wealth divide is not one of them. Though many in their push to advance strong student debt cancellation use racial equity as a rallying cry, it has long been known that eliminating student debt without very progressive targeting is an action that would benefit the highest income households and would actually increase the Black/white wealth divide in young households.
First it is important to remember that only about 40% of 18 to 24 year olds are enrolled in college and only 14% of all Americans are facing student debt, so student debt relief has a limited reach overall. The Brookings Institute did an analysis of former presidential candidate Senator Elizabeth Warrens plan of $50,000 of student debt relief for households making less than $125,000 and even with this targeted approach the bottom 20% of borrowers by income get 4% of the benefits while the highest 40% in terms of income get 60% of the benefit.
In regards to how student debt cancellation effects Black/white wealth inequality it is clear that student debt cancellation maintains or broadens racial wealth inequality unless it is very well designed. A 2015 analysis of student debt cancellation done by the Institute on Asset and Social Policy and Demos estimates that eliminating student debt for all household would increase the Black/white wealth divide by 9% for young households. The same paper notes that eliminating student debt for households making less than $50,000 could bridge Black/white wealth inequality by nearly 7%. A 2020 paper by the Institute on Assets and Social Policy, Arizona State University and the University of Iowa reaffirms the little over all effect cancelling student debt on bridging Black/white wealth inequality. It states the “racial wealth gap among student borrowers remain essentially unchanged at any forgiveness level considered [up to $50,000 of forgiveness} … The result is that for virtually any cancellation amount considered, white borrowers experience greater average wealth gains than Black borrowers.”
A more targeted approach to dealing with higher education and Black/white wealth inequality is needed if wanting to address both of these issues. President Joe Biden’s proposal from the campaign trail actually appears to be following this path. Biden’s proposal to forgive all undergraduate loan debt for borrowers who attended public colleges and universities, as well as historically Black colleges and universities, and private minority serving institutions making less that $125,000 looks like a much more progressive impact in terms of race and class than a more broad student debt forgiveness. Bidens $10,000 across the board loan forgiveness also gives a positive impact for all Americans while impacting those borrowers who are most likely to default on their loans. Two thirds of those who default on their student loans did not finish college or earned only a certificate and the median cumulative student debt for all defaulters is $9,625.
Of course one of the greatest weakness in using student debt to address economic inequality is that it is a short term salve to an ongoing structural problem. During Senator Warren’s campaign for president she also recommended making public college tuition free for the next ten years. She estimated that this plan of free public college tuition for future students for ten years would be slighty cheaper than her plan to get rid of student debt of up to $50,000. President Biden also ran on a plan to make public college colleges and universities, along with Historically Black Colleges and Universities as well as Minority Serving Institutions tuition free for households with income below $125,000. Biden estimates that this below $125,000 threshold includes 91% of Black households, 88% of Latino Households and 91% of Native American households.
A targeted student debt cancellation along with a targeted plan for tuition free higher education is a strong path forward to advance greater higher opportunity for lower wealth Americans which are disproportionately people of color. Effectively addressing racial and wealth inequality requires a targeting of investment and resources, one that simply cancelling $50,000 of student debt fails to do.