President Biden has announced a plan to help narrow the racial wealth gap, but it does not include any student loan debt forgiveness – which some say is necessary to take meaningful steps toward reducing the wealth gap.
the plan, which Biden unveiled on Tuesday to mark the 100th anniversary of the Tulsa Race Massacre, includes a total of $ 25 billion in community revitalization and transportation infrastructure and $ 31 billion in programs for small businesses, among billions of additional dollars to “reinvest in failing communities that have been left behind by failing policies ”. The administration’s proposals aim to reduce wealth disparities between black and white households – the median wealth of a black family is about 13 cents for every dollar of wealth held by white families, according to the administration.
But omitting the student loan debt cancellation measures the administration wants to take won’t be enough to close the wealth gap, NAACP Chairman Derrick Johnson said. The Washington Post.
“The elements of the plan are encouraging, but it does not address the student loan debt crisis that is disproportionately affecting African Americans,” Johnson said. “You can’t start closing the racial wealth gap without addressing the student loan debt crisis.”
Black college graduates have an average of $ 52,000 in student loan debt and owe an average of $ 25,000 more than white college graduates, according to data from the National Center for Education Statistics. Four years after graduation, almost half of black borrowers owe 12.5% more than they borrowed because of interest, while 83% of white borrowers owe 12% less than what they borrow. that they borrowed. And more than half of black students say their student loan debt exceeds their net worth.
The lack of generational wealth means that black households are paying off their student loan debt more slowly than non-black households, said Andre Perry, a senior researcher at the Brookings Institution. This affects the ability of black borrowers to acquire assets that accelerate wealth.
“When you have more student loans, you have less purchasing power,” Perry said. “You have lower credit scores. It is a barrier to home ownership. If we are serious about helping close the racial wealth gap, we would include a provision for the cancellation of student loans. “
Despite his presidential campaign to cancel student loan debt, Biden has yet to do anything to do so, either through executive action or by proposing him to Congress for legislative action in his recent budget document. Biden said he supports the cancellation of $ 10,000 in student loan debt per person and directed the Department of Education and the Department of Justice to review its legal authority to write off up to $ 50,000 in student loan debt through executive action.
But blanket debt cancellation may not be the best solution to closing the racial wealth gap, said Matthew Chingos, director of the Center on Education Data and Policy at the Urban Institute.
“Basically if you write off the same amount of debt for everyone, you’ll write off a lot of white debt,” Chingos said, given that white students hold the most cumulative amount of debt, according to NCES. “Black Americans own a disproportionate share of the debt, but in terms of closing the gap, debt cancellation in many cases could be like three steps forward, two steps back.”
Debt cancellation should only be one piece of the puzzle in solving the structural problems of the student loan program, Chingos said. And that discount could be targeted so that the disparate racial impact of student debt is taken into account.
For example, a student debt cancellation program could be targeted based on income, like Democratic Senator Elizabeth Warren of Massachusetts proposed during his presidential campaign. Warren called for debt forgiveness of up to $ 50,000 for people with household income below $ 100,000 and progressively smaller debt forgiveness amounts for people in households with income. is between $ 100,000 and $ 250,000.
Others – like Perry and his colleague Carl Romer, research assistant at the Brookings Institution – Argue that student debt cancellation should focus on borrowers’ wealth rather than their income. Even though black borrowers have high incomes, they often still have low wealth, which makes paying off student loans more difficult, said Perry and Romer.
Another possibility would be to retroactively apply a doubled Pell Grant – which Biden said he planned to accomplish during his presidency – and wipe out the amount of student loan debt their Pell Grant would have earned, he said. said Chingos. So, if a student had received $ 10,000 in Pell Grant funding, he would receive $ 10,000 in student debt relief.
“We haven’t modeled exactly what this means for racial wealth gaps, but because it’s more targeted, it would definitely go to students from low-income families,” Chingos said.
While it is still not clear how it would or should be accomplished, canceling student debt is a basic necessity because attending college is a basic necessity, Perry said.
“Student loans are something we are told we need to do to become the middle class,” Perry said. “Much of this debt should be forgiven because post-secondary education is essential to economic growth. “