WASHINGTON – New research released today by the Center for Responsible Lending (CRL) shows that cancelling $10,000 of federal student loan debt—the minimal amount most often discussed— would only retire 22 percent of Black student debt and 28 percent of Latino debt. It would also provide similarly limited relief to other borrowers, including first generation college students and those already unable to pay their student debt.
In contrast, larger levels of cancellation would provide substantial relief for low-wealth and low-income borrowers who need it the most. For example, $50,000 of cancellation would eliminate 72 percent of Black and Latino debt. Fifty thousand dollars of debt cancellation would also allow those caught in a debt trap to gain access to credit, buy a home or start a business.
Up to $50,000 of debt cancellation also would help close the racial wealth gap that decades of discriminatory federal policies imposed on college-educated Black and Latino Americans who believed post-secondary education was a gateway to middle class achievement and financial stability. Instead, many borrowers of color, including elderly taxpayers, fell prey to abusive lenders that hampered their ability to achieve financial stability for generations.
“Once again, Americans who work, pay taxes and tried to do the right thing have been used as cash cows to enrich unaccountable investors and corporate executives,” said Jaylon Herbin, student loan outreach and policy manager at CRL. “The true victims of these abusive loan schemes deserve to have this government-imposed weight removed from their shoulders.”
The research report analyzes the impact of federal student debt cancellation using two new data sources: a panel of credit records for more than 360,000 student borrowers and focus group analysis of women from across the country who either voluntarily or involuntarily cut back their work hours or quit their jobs during the Covid-19 pandemic; and new analyses from the 2019 Survey of Consumer Finances.
The analysis shows that debt cancellation provides immediate financial relief for lower income households. For borrowers already delinquent in paying their debt, the impact of $50,000 of forgiveness is much greater. Cancellation of $10,000 of loan debt only retires 22 percent of debt for these borrowers, while 87 percent would benefit from $50,000 of cancellation.
Due to longstanding discrimination, students and families of color generally have less personal, family and intergenerational wealth, forcing them to take on more college debt. CRL’s analysis found that the median federal loan debt for borrowers with the lowest wealth was twice as high as borrowers with the highest wealth. Estimates are that borrowers with unsustainable levels of student debt and little to no wealth are likely to be among the 15 million borrowers projected to struggle with student loan repayment once the federal pause ends.
The research shows that older borrowers also are caught in the student debt trap. Low-income seniors carry an average student debt balance representing 127 percent of their income. A growing number of older borrowers also have had a portion of their Social Security retirement or disability benefits seized for nonpayment of federal student loans, showing that student loans can turn into a lifelong burden and weaken retirement security.
Other key findings of the research show that:
- Federal student debt is concentrated in low-wealth households; the majority of the total student debt is held by families in the lowest wealth quintile, with less than $6,370 in wealth.
- The average student loan debt balance represents 102 percent of the average household income in Black neighborhoods, nearly double that of households in white neighborhoods;
- Despite diligently making payments for a decade or more, nearly 75 percent of Black borrowers and 63 percent of Latino borrowers saw their student loan balances grow rather than shrink;
- Debt continues to burden families for decades with middle age low-income borrowers carrying the greatest amount of debt as a percentage of income.
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