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Quintin Paschall headed to his graduation from Morehouse College fully expecting to walk across the graduation stage with a diploma — and $7,000 in student debt. But he knew that was a small fraction of what some of his friends would owe.
“For some of my classmates who have crippling student debt, they were about to spend the rest of their lives not being able to contribute to the community the way they’d want,” said Paschall, who earned a degree in English from the historically black college in Atlanta.
Many begin their careers with an overwhelming amount of education debt to repay. That debt exacerbates racial wealth disparity by making it more difficult for black graduates to save money and accumulate assets to create a cushion against economic turmoil. It spawns the same financial conditions for their children that they experienced, fueling a cycle that higher education experts say can be reversed only by public policy, not philanthropy.
“It is a very kind thing that Mr. Smith did, but if we’re going to try to solve student loan problems, we can’t rely on the benevolence of billionaires to provide stopgaps that public policy should be fixing,” said Dominique Baker, an assistant professor of education policy at Southern Methodist University in Dallas.
Smith’s gift arrives at a critical juncture for higher education. Years of research have revealed racial disparities in student debt driven by wealth inequality and lackluster funding of institutions that enroll the highest numbers of black college students. These issues have emerged in the 2020 presidential campaign as Democratic contender Sen. Elizabeth Warren (Mass.) promotes a higher education agenda through the lens of racial equity, calling for debt cancellation that would benefit 80 percent of black borrowers.
Congress, meanwhile, appears poised to reauthorize the Higher Education Act in a way that could simplify the federal lending system from the time students take out loans to when they pay them back. All borrowers could benefit from those changes, but African Americans especially so because of the challenges many face with repayment.
Tens of millions of Americans across the racial and socioeconomic spectrum hold more than $1.5 trillion in education loans and contend with a lending system that is exceedingly complicated and often unforgiving. African Americans, however, shoulder the burden of student debt in ways that are placing greater strain on their already tenuous wealth.
Decades of discriminatory public policy in the housing and labor markets have left black families on average with minimal financial resources to afford college, Baker said. As a result, they rely heavily on loans to send their children to school.
Researchers at the Brookings Institution found black graduates with bachelor’s degrees owe $7,400 more on average in college loans than their white peers. That figure more than triples to $25,000 four years after graduation as interest accrues and graduate school loans are thrown into the mix.
Jacinta Yanders, 32, received scholarships that covered the full cost of tuition for her bachelor’s, master’s and doctoral degrees, but still needed loans to keep a roof over her head and food in the refrigerator.
She did all she could to keep costs down: She attended state colleges, held part-time jobs and worked as a teaching assistant in graduate school. Still, her student loan balance approaches six figures. Yanders has not borrowed a dime in five years, but her debt has grown as interest accrued while she was in school.
“There wasn’t any wiggle room in my budget to pay the interest while I was in school. The debt just became such a massive snowball,” Yanders said.
Democratic presidential candidate Julián Castro wants to limit the lifetime accumulation of interest on student loans to 50 percent of the amount borrowed. Sen. Marco Rubio (R-Fla.) introduced legislation to replace student loan interest with a one-time fee — 25 percent of the loan amount for undergraduates and 38 percent for graduate loans — that borrowers would pay over the life of the loan.
While these policies are meant to help all borrowers, they would especially benefit African Americans because of the nature of the student debt disparities. The same is true of efforts to make public colleges tuition-free and to increase federal grant funding for low-income students.
Debt financing was supposed to be an instrument for middle- and upper-income families to send their children to college, while low-income households could rely on a robust federal grant program. Black students are the largest recipients of federal Pell Grants by race, with 72 percent using the awards to pay for college in the 2015-2016 academic year, compared with 34 percent of white students, according to the Education Department.
Grants have not kept pace with the cost of college, requiring more students to borrow than a generation ago — and not just for four-year degrees, but also short-term certificates and vocational programs.
“What we’ve done is dump all of our eggs into the basket of debt,” said Colleen Campbell, director for postsecondary education at the Center for American Progress, a left-leaning think tank. “As a result, we have . . . a situation where a lot of people have taken on debt that shouldn’t have had to in the first place.”
Ashley Payne, 31, was the kind of student the federal Pell Grant was designed to help as the daughter of a single mom raising three children on less than $60,000 a year.
But the grant Payne received fell far short of the cost of attending Fisk University, a historically black college in Nashville.
The Atlanta native made up the difference during her freshman year with university scholarships, a federal work-study job and maximizing federal loans. But when her mother received a pay raise the following year, Payne no longer qualified for Pell or work-study. She started working at Chili’s Grill & Bar, and when that wasn’t enough to cover expenses, she took out private loans with interest rates as high as 10 percent.
“Nobody ever tells you what education really costs you when you don’t have money,” said Payne, who graduated from Fisk with $50,000 in student loans.
She anticipated her prospects for repaying the debt would improve after earning a law degree from Emory University in Atlanta, even though she took out more loans. But when Payne lost her job in the public defender’s office, she was left with more than $300,000 in student debt and no ability to pay. Enrolling in an income-driven repayment plan has kept her federal loan payments affordable, but she is making little headway in paying them down.
While nearly half of all borrowers can afford to pay only toward the interest on their loans five years into repayment, the statistics are especially dismal for black borrowers, according to federal data. African American borrowers pay down their education debt at a rate of 4 percent a year, compared with 10 percent for white debtors. As a result, black borrowers hold 185 percent more in student loans than white borrowers 15 years after leaving college.
Inequities in the labor market have placed African American college graduates at a disadvantage in repaying education debt. An analysis of census data by the Economic Policy Institute, a liberal think tank, found black college graduates between ages 21 and 24 earned on average nearly 17 percent less an hour than their white counterparts.
Earning a bachelor’s degree does not insulate black graduates from falling behind on loan payments or outright default. Nearly one-quarter of African American borrowers with bachelor’s degrees defaulted on their loans, compared with 9 percent of all borrowers who earned the same credential.
“This is something that ties in with labor market discrimination and how repayment works. It is something that is not easily solved by a lot of the policy prescriptions that are being discussed,” said Baker, of Southern Methodist University.
She said the byzantine federal loan repayment system is probably contributing to the challenges black borrowers face. There are more than a dozen repayment options, with some based on the kind of federal loan a borrower holds or when the loan was taken out. Then, there are programs that cancel some of the debt amassed by teachers, police officers and other public servants, but the criteria are tricky, and borrowers can work toward loan forgiveness for years only to learn they are ineligible.
“You’ve got a bunch of different options and a bunch of different programs that are all so sloppily written,” said Adam S. Minsky, an attorney specializing in student loan law. “Congress will slap on a patch to fix parts, but they’re never looking at the whole picture.”
Borrowers face inconsistencies in the service from contractors that the Education Department uses to collect payments, a consequence of the haphazard structure of their contracts and the federal aid programs. The Consumer Financial Protection Bureau has questioned whether disparities in repayment reflect loan-servicing companies discriminating against borrowers of color. The federal agency identified student loan servicing as an area with substantial risk of credit discrimination.
Policymakers have said automatic enrollment in repayment plans pegged to a borrower’s income could mitigate the risk of discrimination and reduce defaults. Baker is skeptical.
“We have to keep in mind that all levels of the repayment process are vulnerable to the same types of systematic discrimination that exist in other governmental services when it comes to black individuals,” she said.
Danielle Douglas-Gabriel covers the economics of education, writing about the financial lives of students, from when they take out student debt through their experiences in the job market. Before that, she wrote about the banking industry. Follow