A study by the Institute on Assets and Social Policy (IASP) found student debt disproportionately affects Black people, leading to the large wealth gap between Black and white people.
The report, authored by Laura Sullivan, Tatjana Meschede, Thomas Shapiro and Fernanda Escobar found that 20 years after starting college, the median debt of white borrowing students had reduced by 94%, while the median Black borrowers had 95% still left to pay.
Though factors like Black applicants facing more discrimination in labor markets and being more likely to support older relatives affect the wealth gap, the hourly income gap between white and Black workers is not nearly as large as the wealth gap. Therefore, though the earnings gap among races is closing, the wealth gap still remains wide.
“As a comparative reference point, the Black-white hourly income gap among men registers about 70 cents on the dollar, and the gap is about 82 cents on the dollar for women: substantial disparities, but ones that are dwarfed by the wealth gap,” the report says.
The wealth gap, it goes on to say, is 10 cents on the dollar between Black and white households and 12 cents on the dollar for Latino and white households.
The large wealth gap, therefore, cannot be fully explained by income disparities. The study found student loans could be much of what is holding students of color back.
The research found economic mobility opportunities like higher education ironically hold Black and Latino students back because of the difficulties they face repaying their student debt.
White college graduates tend to have more family resources to tap into to aid them in repaying their loans. Therefore, uninhibited by large debt, they get a head start on wealth-building investments like buying a home. The study found that the median first-time white homebuyer is six years younger than the median first-time Black homebuyer.
“For young adults of color, who typically start out with little family wealth, the addition of student debt to their portfolios can be crushing,” the study says. “Millions of young borrowers are in precarious economic circumstances, with no financial cushion to turn to in times of need — let alone a nest egg to establish financial security for future steps along the life course and towards retirement.”
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This lack of access to certain financial privileges becomes a cycle that can repeat over generations, the report’s authors write.
Half of Black borrowers default on their student loans over 20 years and typically still have nearly $20,000 in debt 20 years after beginning their degree.
The report cites policy and institutional issues as the root of student debt burden. The authors point out the reality that students cannot borrow their way to better pay. With higher education offering economic mobility but also holding people of color back financially, its connection to wealth is complex.
The report’s authors suggest a broader view of the benefits of education may help change policies surrounding the cost of college.
“We need a return to strong public investment in higher education that acknowledges the societal benefit of an educated public,” the report says.