Combating Racism – Understanding Wealth Inequality – Part 2 – Student Debt

In 2019, Americans collectively owed more than $1.6 trillion in student debt, and the number of burdened families has grown rapidly: one in five U.S. households now has student loan debt, compared to one in 10 in 1989. In the face of these overwhelming numbers, many policymakers have begun to offer their own tuition-free and debt-free college policy plans and even debt cancellation proposals as a way to reinvest in higher education and America’s students. These proposals have sparked a fierce debate about who ought to benefit from this endeavor or how new resources should be allocated. Too often, however, these conversations overlook the critical background context of who currently benefits and loses when much of the higher education system is financed through individual debt rather than upfront public investment.

Crisis-level student debt reinforces racial wealth inequality. To finance higher education, Black families—already disadvantaged by generational wealth disparities—rely more heavily on student debt, and on riskier forms of student debt than White families do. Due to racial discrimination in the job market, Black students are far more likely than White students to experience negative financial events after graduating, including loan default, higher interest rate payments and higher graduate school debt balances. This disproportionate burden of student debt perpetuates the racial wealth gap.

K-12 Education

Education is a key piece of the wealth inequality equation, and disparities begin early. By 1989, 83% of Black students attended majority-minority schools. Segregated schools have resulted in massive resource gaps; predominantly White districts receive nearly $23 billion more in funding than non-White districts despite serving a similar number of students, leading to a persistent gap in White and Black graduation rates.

The ability to read proficiently by fourth grade is a powerful predictor of future success. According to Advance Illinois, a nonprofit dedicated to improved outcomes for every Illinois student, in 2017, just 15% of Black students read proficiently by fourth grade compared to 22% of Latino students and 47% of White students. Just 2 out of every 10 students from low-income homes read at grade level by fourth grade, compared to half of their more affluent classmates.

Last year I wrote extensively about the disparities in our educational system that disadvantage children of color, and ways that we, as a nation, can build stronger children who are better prepared for adulthood. You can refer back to these newsletters here (9/20/20, 9/27/20, and 10/4/20).


In 1862, passage of the Morrill Land Grant Act was an early federal investment in higher education. The Act provided land grants (each state received 30,000 acres of public land for each Senator and Representative) so that new western states could establish colleges, giving farmers and people of the working class access to higher education they would otherwise not have been able to enjoy. The land was to be sold and the monies from the sale were to be put in an endowment fund to provide support for the public colleges in each of the states. But at the time the grants were established, Blacks in the south were not allowed to attend the original land-grant institutions. Even after the passing of the Civil Rights Act, federal education dollars continued to fund states with segregated systems. At the end of the 1960s, 19 states still operated segregated universities and colleges. It was not until the 1970s that courts began to force states to desegregate their university systems.

Prior to the court-ordered desegregation of state university systems, significant federal investments in the higher-education system—such as The Servicemen’s Readjustment Act of 1944, commonly known as the G.I. Bill, and the Higher Education Act of 1965—had very different impacts on Black and White students. According to Columbia political science professor Ira Katznelson, to win support from Southern members of Congress, the G.I. Bill allowed state and local administrators a great deal of autonomy in implementing the program. State officials then made choices that prevented eligible Black G.I.s from accessing the full range of education benefits: segregated colleges refused to accept Black G.I.s who were eligible; career-placement officers channeled Black G.I.s away from more lucrative job training programs and toward traditionally Black occupations; and G.I. Bill administrators in some Southern states refused to approve many Black colleges and vocational schools’ receipt of G.I. Bill benefits. In 1947, over 20,000 eligible Black veterans reported being unable to find a spot in a higher education institution. Because of the inequitable administration of the G.I. Bill, Black institutions lacked the facilities and funding to meet demand. The disparity in funding for minority-serving institutions has continued to this day.

Present-Day Funding Disparities

Disparities in state funding between two- and four-year public institutions and between flagship and satellite state campuses are prevalent throughout our higher education system. Unsurprisingly, as a result of disparities that manifest in the K-12 system, as well as discrimination in admissions and other factors, students of color are more likely than their White counterparts to attend underfunded public institutions that spend less per student. The disparities in funding among institutions extend to historically Black colleges and universities (HBCUs). One study found that in 2014, four traditionally White institutions received more in federal, state, and local contracts and grants than all 89 four-year HBCUs combined.

Even among public institutions, public HBCUs have fewer non-public resources. Because alumni have less wealth, private HBCUs have smaller endowments and fewer resources. Despite this, HBCUs grant about 17 % of all bachelor’s degrees awarded to Black students and a full quarter of STEM degrees awarded to Black students.

In 2018, state funding for two- and four-year public colleges was over $7 billion below what it was in 2008. As a result, tuition has skyrocketed, and academic and student support services have been cut. At the same time, federal support for low-income students has not kept pace with rising costs; the value of grant aid has diminished, requiring students to turn increasingly to loans.

Student Loans

From the beginning of their time in the higher education system, Black students and White students have had a different experience with student loans. Using longitudinal data disaggregated by race and released by the U.S. Department of Education in 2017, Vice President for Postsecondary Education Ben Miller showed that 78% of Black students in the cohort that began college in 2003–2004 took out loans for their undergraduate education, compared to only 57% of White students. Furthermore, in a 2014 study for the Wisconsin Hope Lab, higher education researchers found that while “Black students have always borrowed more than White students, for as long as the federal government has tracked these things, the growth in take-up rates of federal student loans between 1995–96 and 2011–12 was also greater for Black students than White students.” Black adults are almost twice as likely to have student debt as White adults.

The proportion of Black households taking on educational debt doubled between 2001 and 2013 and increased from 6% of total household debt burden for Black households to 20% (the percent of debt coming from student debt only doubled for White households, from 4% to 8%).

Many parents of Black students take on more expensive and riskier forms of debt themselves. For example, a report by the New America Foundation shows that low-income Black families are particularly likely to rely on Parent PLUS Loans, which have no limits up to the full cost of attendance—an amount that goes well beyond tuition to include living expenses. PLUS loans were designed to help middle- and upper- income borrowers, but data shows that among Black borrowers the largest share of borrowers taking out PLUS loans have an adjusted gross income of under $30,000 a year. This is concerning because like other student loans, Parent PLUS Loans cannot be discharged in bankruptcy. Unlike student loans, they are not eligible for income-based repayment. While the literature on parental debt is limited, research confirms that Black parents are more likely to have child-related debt than White parents.

Parent PLUS Loans are not the only risky form of student debt that Black families have turned to in order to fund higher education. Black students and their families are more likely to take on private loans, which carry higher and more variable interest rates and have fewer consumer protections.

The gap in Black and White students’ degree attainment

Black students take out more debt than their White counterparts but, as a result of a wide variety of factors, are less likely to finish their degrees. According to the United Negro College Fund (UNCF), the high dropout rate among Black college students “is partially due to the fact that 65% of Black college students are independent”—these students have to work full-time and care for families while trying to complete their degrees.

Another compounding factor is the K-12 system. Only 57% of Black students have access to the full range of math and science courses necessary for college readiness. While the college enrollment gap has narrowed in recent years, the completion gap has not. The four-year degree attainment gap between Black and White students is greater today than it was when the Higher Education Act was passed in 1965.

As discussed above, inequities in college preparation and admissions make Black students far more likely to enroll in less selective, and often under-resourced, colleges that have lower overall college graduation rates.

Negative Financial Events

Due to lower family wealth and racial discrimination in the job market, Black students are far more likely than White students to experience negative financial events after graduating—including loan default, higher interest rate payments, and higher graduate school debt balances.

Those who do not complete their degree face steeper challenges with debt. Failing to complete a degree program is correlated with increased risk of default on student loans.

After they leave school—whether with a bachelor’s degree or not—Black student borrowers continue to have very different experiences with their loans than White student borrowers. A recent Demos paper showed that more than half of Black male borrowers who started college in 2003-2004 had defaulted on a loan within 12 years of starting school. The Brookings Institution found that Black B.A. graduates “default at five times the rate of White B.A. graduates (21% versus 4%)” even after adjusting for differences in degree attainment, college GPA, post-college employment, and institution type.

Default is not the only measure of trouble for student borrowers. In a study for the Center for American Progress, Ben Miller showed that 12 years after entering college, the median Black borrower had made no progress in paying down their loans; in fact, the balance had actually increased. A Demos report disaggregated this data by gender and found that in the 12 years after starting college, the typical Black female borrower’s student loan balances grew by 13%. This subset of borrowers is either in default, delinquent, or using a forbearance or income-based repayment program. In all cases, they are not earning enough to pay off their debt.

A discriminatory job market that reduces the impact of the college wage premium and lack of family liquidity both contribute to these unequal outcomes. The student loan products that Black students and their families often rely on are made more dangerous by the fact that college is less likely to result in a high-wage job for Black Americans. At every degree level, Black graduates earn less on average and thus have less money with which to pay back their loans. In addition, a 2013 report from the Center for Economic and Policy Research showed that 12.4% of Black college graduates between 22 and 27 were unemployed—twice the unemployment rate for college graduates as a whole. Furthermore, they concluded that over half of employed Black graduates were underemployed.

When they do not earn enough to pay back their loans, Black graduates often do not have the family resources to fall back on that many White graduates in this position do.

Racial wealth inequalities

The disproportionate burden of student debt on Black families perpetuates racial wealth inequalities.

Though policymakers often tout education as a key to reducing inequality, research by William Darity, Jr. and Darrick Hamilton shows that increased education does not close the racial wealth gap. The average Black family whose head-of-household has a college diploma has less wealth than a White family whose dominant earner did not finish high school. Only Black families whose predominant earner has post-graduate education have wealth levels comparable to White households headed by someone with partial college education.

The wealth gap is magnified for women of color. A report from The Insight Center shows that college also fails to provide the same wealth gains to Black women that it does to White women. Single Black women in their 30s with a college degree average $0 in wealth (having spent the past decade $11,000 in debt on average). Meanwhile, median wealth for White women in their 30s with a college degree is $7,500. The difference in wealth between Black college graduates and White high-school dropouts is a striking sign that the debt-financed higher education system may actually be contributing to the racial wealth gap.

Concrete Actions

We need higher education policies that get students of color both into and through college in order to realize the wage benefits of a college degree. We also need to take into account the structural inequalities and discrimination that shape every step of the experience of students of color both in college—from paying for college to accessing academic opportunities—and in the job market after leaving school with or without a postsecondary credential.

There are some concrete actions that can help narrow the inequitable effects of our current higher education system. For example, policymakers could:

  • Bring down the cost of college to reduce reliance on debt: When the federal loan and grant system was created in the 1960s, college cost a fraction of what it does today. Average tuition at a public institution has risen 12-fold since 1978. Reducing the cost of college would allow our higher education finance system to function more like it was originally intended.
  • Take steps to dismantle segregation in enrollment and racial disparities in completion rates.
  • Crack down on predatory, for-profit schools that have historically preyed on students of color.
  • Alleviate the burden of existing student debt: Cancelling at least some would automatically build wealth for Black families.
  • Move from a debt-financed system to a public investment-financed system.

To build a higher education system that fosters the mobility and equality of progressive ideals, policy debates must address the unequal risks that our economy creates for Black families. Given its economic and social value, it makes sense that higher education would be seen as a public good. A comprehensive, race-conscious higher education policy cannot be complete without a universally accessible, public higher education system.

Higher education policy alone cannot close the racial wealth gap. Narrowing racial wealth inequalities requires a range of economic policies to help Black families build wealth, some of which I will cover in my next newsletter. But one significant issue includes reassessing how we finance higher education. It is vital that researchers, policymakers, and practitioners appreciate the ways in which racial inequality in our economy shows up in the higher education system. And it is just as vital that those focused on reducing and eliminating racial wealth inequality help guide higher education policy to help achieve that goal.

Source: Bridging Progressive Policy Debates: How Student Debt and the Racial Wealth Gap Reinforce Each Other, report by Suzanne Kahn (The Roosevelt Institute), Mark Huelsman (The Century Foundation) and Jen Mishory (Demos), September 2019.

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