In August, when President Joe Biden rolled out his historic plan to cancel up to $20,000 in student loan debt for tens of millions of Americans, one of the policy’s stated goals was “to help narrow the racial wealth gap.”
Shortly after the president’s announcement, critics of student loan forgiveness brought a series of legal challenges against the plan, saying it was an abuse of executive authority, and soon the Biden administration had to pause its program.
The Supreme Court has now agreed to hear two of those cases at the end of February. Legal experts say the policy faces a narrow path to survival with the court, given its conservative majority.
More from Personal Finance:
Biden to revisit ‘billionaire minimum tax’ in State of the Union
Amid inflation, shoppers turn to dollar stores for groceries
Savers poised for big win in 2023 as inflation falls
If the relief plan falls through, the consequences for Black Americans will be severe, advocates say.
“Not only would this be a disastrous blow to Black Americans, but to our economy as a whole — the racial wealth gap will widen, and the vicious cycle of economic inequality will continue,” said Wisdom Cole, the national director of the youth and college division at the NAACP.
Here are three reasons why the student loan crisis is worse for Black Americans, and why they’d especially feel the loss of loan forgiveness, experts say.
1. Student debt ‘exacerbates racial inequality’
The explosion in outstanding student debt over the past few decades has been blamed for making the racial wealth gap wider. Last year, Black families had 25 cents for every dollar of white family wealth, the Federal Reserve Bank of St. Louis found.
Because Black families have less wealth, their children typically need to borrow more for their education.
About 85% of Black students graduate with their bachelor’s degree holding student debt, compared with 69% of white bachelor degree recipients, according to data from higher education expert Mark Kantrowitz.
And since student debt is often taken on relatively early in a person’s life, it can then make it harder to hit other milestones down the line that help build wealth, such as buying a house and investing, experts say.
“Student loan debt is both a product of the racial wealth gap and a tool that exacerbates racial inequality,” said Jaylon Herbin, director of federal campaigns at the Center for Responsible Lending.
In 2018, around 40% of Black college graduates said their student debt delayed their ability to buy a home, compared with 34% of their white peers, Kantrowitz found.
2. For-profit colleges target Black students
For-profit schools have come under fire for misleading students about their programs and career outcomes — and for preying on people of color.
“For-profit schools disproportionately target Black and low-income students across the country,” Herbin said.
Nearly 18% of Black undergraduate students enroll in for-profit colleges, compared with closer to 11% of white undergraduate students, according to Kantrowitz.
“Black students are more likely to enroll in for-profit academic institutions with lower degree completion rates,” Herbin said. “Therefore, they often are forced to repay debt for higher education that did not increase their job prospects.”
In the 12 years after entering college, nearly half of for-profit students defaulted on their student loans, according to the Brookings Institution.
3. Black borrowers struggle more with repayment
Because of historic racial and economic inequities, Black student loan borrowers struggle to repay their debt more than their white peers.
Prior to the pandemic, the default rate for Black student loan borrowers was more than 30%, compared with 13% for white borrowers, according to the The Center for American Progress. Meanwhile, white borrowers pay down their education debt at a rate of 10% a year, compared with 4% for Black borrowers.
Without student loan forgiveness, these repayment challenges are likely to only worsen, Cole said.
“The burden of student debt may very well follow Black borrowers for the rest of their lives, crippling their ability to achieve the upward mobility that higher education supposedly guarantees,” he said.