How Canceling $15 Billion In Student Loans Impacts The Racial Wealth Gap

President Biden has extended student loan borrowers’ time frame before they have to start repayment. The U.S. Department of Education (DOE) estimates that this will amount to $15 billion of total student loan cancellation due interest costs that do not have to be paid. The Roosevelt Institute brief shows that canceling up to $50,000 of student loan debt per borrower would immediately increase the wealth of Black Americans by 40%.

The Breakdown You Need To Know: DOE estimates student loan borrowers collectively will save $5 billion a month in interest costs. Unfortunately, more than half of Black borrowers, 58%, disagree that student loans contribute to racial equality or help them to build wealth, according to the Jim Crow Debt study by The Education Trust. Eliminating this debt will start to narrow the racial wealth gap for young families, with 86.6% of Black students taking out federal loans to attend four-year colleges.

Student debt cancellation is not regressive, in fact, it’s progressive and needs to happen, CultureBanx reported. Canceling student debt would make the income and wealth distributions more egalitarian and nearly eliminate negative net worth households from the wealth distribution. While this isn’t wide-scale student loan cancellation in the traditional sense, this will save student loan borrowers substantial money for their student loans, as Zack Friedman of Forbes writes. 

Young Black adults take on 85% more education debt than their white counterparts, and that disparity compounds by 7% each year after the borrowers leave school, according to a recent study in the Sociology of Race and Ethnicity journal. Students of color typically rack up hundreds of thousands of dollars in student loan debt, meaning they are unable to focus on other financial goals like buying a home, paying off credit card debt, and saving for retirement.  A large number of Black borrowers are not witnessing “good debt”, according to the Jim Crow Debt study by The Education Trust.

Situational Awareness: It is definitely possible to initiate a positive long-term impact on racial wealth gap by tackling the inequities that hang on to the students’ college debt.‍ Pew Research found the share of students taking out loans to finance their degrees rose from 49% to over 69% from 1993 to 2012. Four years after graduation, the average Black college graduate owes $52,726, compared to $28,006 for the average white college graduate. If we can create systems that recognize these lived experiences, we can create more equitable outcomes for everyone.