Op-Ed: Student Debt is
a Double-Edged Sword

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Kate Sablosky Elengold is an Assistant Professor of Law at the University of North Carolina School of Law. Amanda Martinez is an Education Policy Analyst at UnidosUS.

Student Debt is a Double-Edged Sword

Kate Sablosky Elengold and Amanda Martinez

For communities of color in the United States, debt is a double-edged sword. Although taking on debt can create financial gains in the long run — allowing for wealth-development through home ownership or business expansion — access to such credit is not universally available. Black and Latino households have difficulty accessing traditional credit: they are unbanked – meaning that no one in the household has a checking or savings account at a bank or credit union – at rates that are five to six times that of White households. At the same time, credit that isavailable to Black and Latino borrowers in financial situations like this can be predatory and pernicious. For example, Black households are more than twice as likely to turn to payday lending than White households. Sociologist Raphaël Charron-Chénier argues that predatory inclusion is a primary driver, a concept he and sociologist Louise Seamster have defined as “the incorporation of formerly excluded communities into financial arrangements—on terms that negate the advantages of incorporation.”

Where debt is available, Black households take on relatively more, while Latino households take on less. It may work differently for different populations, but the effect is the same. Households of color are unable to build credit and capital at the same rates as White households. And the wealth gap, including the intergenerational wealth gap, widens.

Take student debt for example. Black students borrow at higher rates and greater amountsthan their White peers. Far less studied and less understood, Latino students tend to exhibit slightly different behavior with respect to education debt. While Latino students take out loans at approximately the same rate as their White peers, they borrow less – an average of more than $3,000 less.

A recent report issued by the UNC School of Law, the UNC Center for Community Capital, and UnidosUS shows that Latino students are more debt averse than non-Latino students. A survey of 1,500 individuals with some college and no degree showed that, across three measures, the Latino respondents exhibited statistically significant greater levels of aversion to education debt than their non-Latino peers. At the same time, Latino respondents reported financial distress while in school (including food and housing insecurity) by an average of more than nine percentage points. It is not surprising then, that when asked why they had to drop out of college, Latinos reported greater financial barriers to completing college across every financial measure andwhen scaled across individual metrics.

Black and Latino students may approach debt differently, but the outcomes are similar. One-third of Latino borrowers do not complete their degrees, yielding debt without earning potential; only one in four White borrowers drop out of their programs. Four years after graduation, Black graduates have close to twice the amount of education debt as White graduates. Causation is complicated and layered. But one thing is certain – we cannot lift and study higher education from lived experiences that bookend it, including K-12 education and experience in the labor market. There is no question that the aggregate levels of student loan debt are staggering ($1.54 trillion) and that many borrowers of all races and ethnicities are struggling under the weight of that debt, but we cannot ignore the ways in which racial and ethnic wealth gaps create and exacerbate those disparities.

For perhaps the first time ever, there has been significant and sustained interest in canceling student debt, or at least some of it. #CancelStudentDebt is trending in the United States as policymakers push the Biden administration to cancel up to $50,000 in student loan debt. On February 4, 2021, Representatives Ayanna Pressley, Ilhan Omar, Mondaire Jones, and Alma Adams joined with Senators Elizabeth Warren and Senate Majority Leader Chuck Schumer to call on the Biden Administration to cancel up to $50,000 in student loan debt.

Newly-minted President Biden had seemed unconvinced by lawmakers and advocates that he can and should immediately cancel student debt through executive order. Instead he had previously stated that he would ask Congress to cancel $10,000 in student debt. Originally thought to be included in a coronavirus relief package, however, Biden’s recently-proposed $1.9 trillion stimulus package did not include a call for student debt relief. After renewed push from legislators and advocates, Press Secretary Jen Psaki issued a statement noting that President Biden remains supportive of cancelling student debt and is “reviewing whether there are any steps he can take through executive action.”

If and when the federal government provides relief for student loan borrowers, it will make strides toward closing the racial wealth and opportunity gaps. But it will not be enough. Because debt is a double-edged sword for communities of color and because Blacks and Latinos generally approach debt differently, the solution must also be multi-dimensional. That is not onlybecause ignoring the future costs and debt-driven financing of higher education will put us right back in the same spot in the future. Indeed, it will. But, as shown by this new research, continuing to operate higher education through a debt-financed system, even after a global pandemic, ignores the realities of structural racial inequity present in college financing. And it is likely to lead to greater racial stratification in the labor force due to lower degree attainment by debt averse Latinos. Additionally, while initial data on college enrollment trends due to the pandemic show declines across the board, the steepest declines are among students graduating from high minority high schools. If the goal is to eliminate inequities in higher education, canceling student debt will not be enough to level the economic playing field. This is true for all underserved students, especially ones of color, and Latino students are among the hardest hit

Because the Latino population in the United States is disproportionately young, growing in population share, and is closing the gap in college matriculation, it is critically important—from a racial equity perspective—to pay close attention to policy programs and interventions that support Latino college attendance and completion. What does that mean for the #CancelStudentDebt movement? It means that canceling (some or all) student debt is an incremental and effective investment in equity but should be matched with carefully designed and implemented mechanisms for reducing the financial barriers to college entry and college completion going forward.