Could Forgiving Student Loans Help Close the Racial Wealth Gap?
(QUEEN CITY NEWS) – Student loans are the second-largest source of debt for Americans. Recent polls show that 64% of Americans support the cancellation of student loans.
Deston Thorton earned academic and athletic scholarships to attend Johnson C. Smith University where he studied business management.
“I’m an entrepreneur,” Thorton said. “I have a carpet cleaning business. I have a clothing brand and I have a t-shirt printing business.
Three years after graduation, one pressing problem remains, Thorton still owes over $20,000 in student loans.
“It’s just debt ruining my credit,” Thorton said. “It takes away some opportunities.”
Thorton is one of 43 million Americans who owe $1.75 trillion in student loan debt and counting.
Some studies show student loan forgiveness? would benefit high-income neighborhoods. Teddy McDaniel, CEO of the Urban League of Central Carolinas, said targeted student loan forgiveness could help reduce longstanding inequality for families earning less than $50,000 a year.
“We’re dealing with low-wealth communities and their ability to support their families and grow,” McDaniel said. “If student loans were eliminated, for those earning 50,000 less, you would have a 37% reduction in the racial wealth gap.”
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A recent analysis by the Federal Reserve Bank of New York estimates that forgiving up to 10,000 per borrower comes at a cost of $321 billion. If the policy applies to people earning less than $75,000, that would reduce the cost to $182 billion. McDaniel says it’s worth the expense.
“Before the pandemic, the median net worth of a white family was $117,000, the median net worth of a Latino family at the time was $6,800, and black families $4,400,” said McDaniel. “Some studies have shown that we are continuing on the trajectory we are on now that the wealth factor for black families will hit zero due to the housing crisis. So it would be an economic boost to give millions of people across the country the chance to rebuild their wealth.
Several Republican senators, including Richard Burr of North Carolina, drafted the Stop Reckless Student Loan Action Act. If passed, it would limit President Biden’s power to cancel loans and further delay payments.
“The resumption of student loan repayments is long overdue, especially in today’s dynamic labor market. That’s why I’m proud to work with my colleagues on this important bill, which will end the repayment moratorium that has exacerbated existing moral hazard against borrowers and cost taxpayers an estimated $5 billion a month.” Burr said.
For Thorton, wiping the slate clean would mean more resources to grow his businesses.
“I would buy a building or a brick and mortar for my t-shirt printing business, and just use that money to invest,” Thorton said. The last break in payments ends on September 1st. President Biden faces growing pressure to act before the midterm elections.