Will Student Loan Forgiveness Close The Racial Wealth Gap?
Some policymakers have argued that student loan forgiveness will help close the racial wealth gap. The impact, however, is small, and misses the real problem, a racial pay gap. The student loan debt gap between Black and White college graduates has grown over the last two ... [+] decades. Mark Kantrowitz  Forgiving student loans mainly benefits students who borrowed to pay for college. It doesnt affect students who didnt borrow and people who didnt go to college. Broad student loan forgiveness is therefore limited in its potential impact on the national racial wealth gap. Certainly, Black students are much more likely to borrow to pay for college, and they graduate from college with more debt. Among Bachelors degree recipients, 84.9% of Black students graduate with student loan debt, compared with 69.4% of White college graduates, based on data from the 2015-16 National Postsecondary Student Aid Study (NPSAS). They also graduate with $3,900 more student loan debt on average ($33,993 vs. $30,093). The racial student loan debt gap grows significantly just four years after graduation. In 2008, Black Bachelors degree recipients graduated with $3,374 more student loan debt than White Bachelors degree recipients, based on data from the 2012 follow-up to the 2018 Baccalaureate and Beyond longitudinal study (B&B). Four years later, the student loan debt gap had grown to $19,370. Student loan payments were a third of income (34%) for Black college graduates in 2012, compared with a quarter of income (24%) for White college graduates. The significant growth in the student loan debt gap four years after graduation suggests that the racial wealth gap is not just caused by the student loan debt gap, but is also due to a racial pay gap. Therefore, forgiving student loans will not completely solve the problem, as Black college graduates will still be paid less than White college graduates, despite having the same degrees. Moreover, broad student loan forgiveness benefits more White borrowers than Black borrowers. More than half of the money from broad student loan forgiveness would go to White borrowers (56%) and only 18% would go to Black borrowers. This is why student loan forgiveness should be targeted based on income (or debt-to-income ratios), so that it helps borrowers who are experiencing economic hardship. Black borrowers are more likely to default on their student loans. 29.3% of Black borrowers default on their federal student loans within six years of enrolling in college, based on data from the 2017 follow-up to the 2011-12 Beginning Postsecondary Students longitudinal study (BPS). That compares with 12.2% of White students. Means-testing of student loan forgiveness will help all borrowers, including both Black and White borrowers who are struggling financially.