Student loan borrowers call for full student debt cancellation at a rally outside the White House on January 13, 2022 in Washington, D.C. (Photo: Paul Morigi/Getty Images for We, The 45 Million)

Biden's Student Debt Plan Is an Important Step Towards Narrowing the Racial Wealth Divide

Black students have had to take out larger loans and faced greater difficulty paying them back than other borrowers.

President Biden's student debt plan will provide relief to some 43 million borrowers of all races--and it is a particularly important step towards narrowing the racial wealth divide.

Black graduates also face greater challenges in paying off their student debt because of the systemic racism in education, employment, housing, and other areas that creates economic disadvantages.

The student debt crisis has disproportionately affected Black families, exacerbating racial inequalities. On average, Black students have to take out larger loans to get through college than their White peers. A National Center for Education Statistics study reveals that Black Bachelor's degree graduates have 13 percent more student debt and Black Associate's degree graduates have 26 percent more than White graduates with those degrees.

Black women have the largest student debt burdens of all. Those who received bachelor's degrees in 2015-2016 have average student debts of $37,558, compared to $31,346 for White women, according to a 2020 analysis by the American Association of University Women analysis of a 2017 U.S. Department of Education survey.

Black graduates also face greater challenges in paying off their student debt because of the systemic racism in education, employment, housing, and other areas that creates economic disadvantages. Black Bachelor's degree and Associate's degree holders earn 27 percent and 14 percent lower incomes, respectively, than Whites with the same degree.

Institute for Policy Studies analysis of Federal Reserve data shows that while the racial wealth gap has improved slightly, an estimated 28 percent of Black households and 26 percent of Latino households had zero or "negative" wealth in 2019 -- twice the level of Whites. Families that have zero or negative wealth (meaning the value of their debts exceeds the value of their assets) live on the edge, just one minor economic setback away from crisis.

As a result of these economic disparities, Brandeis University researchers have found dramatic racial differences in long-term debt burdens. Black and White students who enrolled in college in 1995 took out relatively similar amounts of student loans: $19,500 for Black people, and $16,300 for White people. Twenty years later, the Black graduates had on average only been able to pay down 5 percent of their total amount owed, while Whites had on average been able to pay off 94 percent of the amounts they owed.

Debt cancellation will be a boost not only for borrowers, but the economy as a whole. Research by the Federal Reserve and the Levy Economics Institute shows that once former debt holders are freed up from these financial burdens, they will have more buying power to help spur economic recovery.

President Biden's plan will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell Grant recipients. Pell Grants are needs-based financial assistance. According to the White House, about 94 percent of Pell Grant recipients came from a family that made less than $60,000 a year and 66 percent made less than $30,000.

Borrowers are eligible for relief if their individual income is less than $125,000 ($250,000 for married couples). No one who ranks in the top 5 percent of U.S. incomes will receive benefits under the plan. The plan also includes several other provisions to make student loans more manageable, such as capping monthly payments for undergraduate loans at 5 percent of a borrower's discretionary income -- half the rate that most borrowers now pay.

Much more needs to be done to reduce remaining debt burdens and prevent future students from accumulating new unpayable debt loads. In a statement, the White House admitted as much, vowing to continue working to lower tuition costs by increasing the size of Pell grants and making community college free. But Biden's action is a welcome step to help millions of people meet their basic needs and build the generational wealth that has been elusive for so many Americans, particularly Black families.

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