With nearly 45 million Americans owing 1.7 trillion dollars in student loan debt, the Department’s intent to establish a negotiated rulemaking committee to examine proposals under the waiver, modification, and compromise authority is critical to increasing fairness and affordability for those who must accrue debt to pursue higher education. The sheer scale of the student loan debt crisis in America—and its disproportionate and, often, inequitable, impact on borrowers of color—compels us to urge the Department to use this negotiated rulemaking to develop and put in place a series of strong, impactful programs and policies that will make repaying federal student loans less onerous, more affordable, and less likely to end up in default.
Though a federal student loan is not an inherently predatory financial product, the use of federal student loans to finance higher education has devolved into a practice that is ripe with potential predation. This is especially true for borrowers of color. Since CRL released its 2014 report highlighting the rapid growth of for-profit colleges that charge more money to obtain education with less labor-market value, lax regulatory oversight has allowed the predatory, and often racially-targeted practices of these institutions to disproportionately affect millions more minority borrowers by saddling them with debt that their educations cannot sustain. At the same time, equally lax oversight of the Department’s servicers has led to many borrowers of color needlessly being placed in deferment, forbearance, or subsequently defaulting on a student loan, due to their unawareness of income-driven repayment options.
The result is a perfect storm. Far too many borrowers of color not only pay more for an education that has less labor-market value, but also have less access to built-in, relief mechanisms that minimize default and prevent debt escalation through existing interest capitalization policies. These challenges are only multiplied by the pre-existing racial wealth gaps for minority households, which force students of color to borrow more money to pay for their college educations in the first place. Finally, after college, borrowers of color face significant wage disparities when compared to their white counterparts, and endure more income volatility in an economy already plagued by stagnant wages. Given these facts, it is no surprise that minority borrowers are both especially susceptible to default and have found it more difficult to pay off their federal student loan debt. An astounding 40% of Native American and Native Alaskan graduates end up defaulting on their student loan repayment, along with 35 % of Latino graduates, and 30% of African American borrowers. Past racial inequities and continuing, overt discrimination make it difficult, if not impossible, for too many borrowers of color to sustain their federal student debt obligations.