In 2018, Aaricka Washington took out $100,000 in student loans.
The money covered a master’s degree and living expenses for a 10-month journalism program at Columbia University. It was Washington’s first experience with student loans: She had received an income-based scholarship to attend Indiana University for free as an undergraduate. But after graduating, she felt pressured to get a master’s degree from a prestigious school to get a better-paying job.
The result was a mountain of debt that largely dwarfs the $10,000 he will get in forgiveness from President Joe Biden’s new student loan plan. Like many other black borrowers, Washington says she feels abandoned.
“This is just a drop in the ocean for me,” a 30-year-old associate editor at the nonprofit media outlet LAist tells CNBC Make It Washington. “There is no one in my family who has given me thousands of dollars to go to school. I had to do it on my own.”
Black students and graduates take out more student loans than the average white borrower, and find it more difficult to repay their loans. Our years after graduation, the average black borrower owes $53,000, while the average white borrower owes $28,000, according to the Brookings Institution.
After that same four-year span, 48% of black students owe an average of 12.5% more than they originally borrowed, while 83% of white students owe 12% less, according to the Education Data Initiative.
Statistics like that lead some experts to say that black borrowers specifically need more than $10,000 in loan forgiveness. Andre Perry, a scholar-in-residence at American University who specializes in race, structural inequality and education, says Biden’s announcement is a promising start to solving the student loan debt crisis.
But, he says, it overlooks borrowers whose ability to buy a home or start a family is hampered by student loans, even if they earn relatively high paychecks.
“It misses low-income people who now have high incomes,” says Perry. “There are a lot of people who started out poor and are now middle class. But they are still burdened with debt.”
Perry says annual salary is a misleading way to measure how easily someone can pay off a student loan. Instead, it focuses on overall wealth.
That’s in large part because family money can often make the difference between choosing a fixed-rate loan repayment plan and a gradual repayment plan when you’re fresh out of college.
Take income-based plans, for example. The lower monthly payments are easier to afford on entry-level salaries, but ultimately result in much higher total costs due to the high interest borrowers rack up in those early years. People on income-driven plans can spend years racking up interest faster than they can afford, even if they’re making their minimum payments each month.
In a fixed-rate plan, you pay the same monthly minimum over the course of your payment. You’ll pay a lower total amount, but it’s harder to afford those monthly payments on an entry-level salary, unless you have some amount of generational wealth at your disposal.
of the Federal Reserve Board Survey of Consumer Finances 2019 found that the median wealth of white households in the country was $188,200, almost eight times higher than that of black households. A Brookings Institution Analysis of data from that survey found that 30% of white households could give their children an inheritance of $195,000, while only 10% of black households could afford $100,000, a much lower figure.
“People from low-income households are told that going to college is the main route to getting a piece of the American Dream,” says Perry. “White people categorically … have more wealth. They have their own higher education plans to make college more affordable.”
Georgetown University graduate student Bre Jefferson says she owes $47,000 in debt with interest from attending Western Washington University for her bachelor’s degree. Her master’s degree in public policy is covered by a merit-based scholarship, but Jefferson says that being in debt, even after a $10,000 discharge, affects how she plans for her future.
“I used to work jobs that didn’t make six figures, but they were jobs that nurtured who I am as a person and how I want to contribute to society,” says the 31-year-old Jefferson. “I have to decide if I want to pursue financial success or work at a job that aligns with my core values.”
Both Jefferson and Washington say they are concerned about their ability to buy homes, raise families and invest for the long term. And because their loan payments have been deferred since 2020, they don’t know exactly what they will do when payments resume on January 1, 2023.
For now, Washington says her savings will go toward furnishing her apartment and a family trip in December. Jefferson says he’s trying to decide between paying off his loans as quickly as possible or making only the minimum monthly payments so he can put more money toward retirement.
Both women’s concerns show exactly why high debt can have broader economic consequences, Perry says: “When you have more debt, you have less discretionary money to spend on essentials like housing and energy. You also can’t invest as much, so you see less home ownership and less business ownership.”
The student loan debt that black borrowers are accumulating may even be shrinking, or eliminating, the black middle class, perpetuating a cycle of stagnant or depleting wealth and leaving people less able to finance their higher education. sons.
Researchers define middle-class America by wealth and education, but highly educated black households tend to have significantly less wealth than their white counterparts, says Fenaba R. Addo, co-author of the forthcoming book “A Dream Defaulted: The Student Loan Crisis Among Black Borrowers”.
“We started by building on the literature that Black people with some type of higher education make up the middle class,” says Addo, an associate professor of public policy at the University of North Carolina at Chapel Hill. “But looking at their portfolios of wealth, that didn’t reflect the American middle class as a whole.”
The Biden administration’s announcement is a great first step, says Perry: Lowering monthly payment limits from 10% of a borrower’s income to 5% could make a significant difference.
The same could happen with the plan’s additional $10,000 in student loan debt forgiveness for Pell Grant recipients. In the 2015-2016 school year, 72% of black students received Pell Grants compared to 34% of white students. according to the National Center for Education Statistics.
Still, the full amount of forgiveness isn’t enough specifically for black borrowers, Perry says. In her ideal world, he adds, the US would find a way to offer free college education, much like the country’s K-12 public school system.
“If we’re committed to the American dream, we should have a public option for people to attend college that’s similar to the public option we have for K-12 schools,” he says. “Retroactively, we should forgive more amounts of student debt. And ideally, that forgiveness model would be based more on wealth, and not just income.”
Other experts warn against increasing the current forgiveness amount, which is already projected to cost the federal government $329.1 billion over 10 years, according to a budget model from The Wharton School of the University of Pennsylvania.
Building on that data, Andrew Lautz, director of federal policy for the National Taxpayers Union, Estimate it would cost the average taxpayer more than $2,000. “That has consequences for consumers,” Lautz told CNBC last week. “It has consequences for taxpayers.”
But returning the funds to the bank accounts of black borrowers will allow them to more fully reinvest in the economy, says Perry.
“People think that education predicts wealth, when in fact it is wealth that predicts education,” he says. “We’re still dealing with the symptoms of discrimination rather than the root causes, and at some point we’re going to have to eliminate it on a structural level for black borrowers to even begin to build wealth.”
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