Racial disparities and student debt: A “two worlds issue”

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Racial disparities and student debt: A “two worlds issue”

Eaton, whose upcoming book “Bankers in the Ivory Tower” explores the influence of financiers in higher education, said, “I think it’s fair to ask the question, do we really want the secretary of education to be effectively the CEO of the largest consumer bank in America?”

Wherry also stressed the disproportionate ways the student loan system burdens Black communities in particular, calling it a “two worlds issue.”

According to the Consumer Financial Protection Bureau and 2011-12 data from the U.S. Department of Education, over payday loans Milton 90% of Black undergraduate students leave college with student debt, compared to 66% of White students.

“Having grown up in South Carolina, the one thing that I would hear over and over again as a young Black kid was, ‘Get your education. It’s the one thing they can’t take from you.’ So you were supposed to do whatever it took, and the family was willing to do whatever it would take in order for you to get your education, which required debt,” Wherry said.

She pointed to income-driven repayment plans, which forgive remaining balances after 20 to 25 years of qualifying monthly payments, and the Public Service Loan Forgiveness program that forgives after 10 years of qualifying payments

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According to a 2016 Brookings report, Black students owed about $7,400 more on average than White students upon graduation, but the debt gap more than triples to $25,000 after four years. Black borrowers are also more likely to default, and they are more likely to enroll in for-profit institutions for graduate school degree programs.

“We’ve seen cases about how for-profit schools engage in [reverse] redlining practices, particularly offering worthless degrees into the hardest-hit communities. This happens over and over again where it’s not only more debt, it’s how the student loan industry drives needless interest, fees, predatory products that just makes the student debt crisis even worse,” he said.

We see how student loan servicers will fail to get borrowers of color into critical consumer protections, leaning them more prone to delinquency and default

Among the factors contributing to the growth in student loan debt is the surging price tag of higher education. Between 2007 and 2017, the cost of undergraduate education at public institutions (including tuition, fees, room and board) rose by 31%, adjusting for inflation, according to the Department of Education. At private nonprofit institutions, prices rose by 23%.

“The one thing that [colleges] could count on was the fact that the demand for education was not going to go away. So long as the federal government’s backing those loans and you’ve got this really robust market to provide those loans, whatever your expenses are or what they are, the students will still come,” Wherry said. “That is exactly what happened, and they have come into situations where there are some beautiful dorm rooms now across all these colleges, great athletic facilities , etc., but at a very high cost.”

On top of the rising prices, if student debt cancellation were to become an additional factor, economist Beth Akers of the conservative think-tank American Enterprise Institute said she would be concerned. Students may be inclined to borrow more or go to a more expensive institution due to the likelihood that loans might be forgiven in the future, she said.

“We take discipline off of individuals to make good decisions about their finances. And then the result of that is that we get institutions lacking the pressure from their student borrowers to keep prices in line with value,” Akers said.

Some critics of cancellation proposals point out that student debt forgiveness programs currently exist within the federal financial aid system.

“It’s a solution that ignores the solution that’s already in place,” Akers said. But Akers acknowledged they are implemented “very poorly,” and aren’t available to all borrowers.

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