Education: The racial wealth gap of student loans

I can't stand my student loans. I HATE my student loans with a passion. Not all $74,000 but just the $42,000 in interest. My interest is now bigger than the amount borrowed. Can I say it again? I hate the compounded interest of my student loan and I am NOT alone.

The president-elect and the federal government are exploring options to remove the $1.6 trillion in student debt held by 44 million Americans, like me. According to the Washington Post, https://www.washingtonpost.com/education/2020/11/18/student-debt-cancellation-biden/, "On Wednesday, 238 nonprofit and community organizations — including the NAACP and American Federation of Teachers — urged Biden to take action on loan forgiveness on his first day in office. In a letter to Biden and vice president-elect Kamala D. Harris, the groups argue that using administrative debt cancellation will advance his campaign priorities of economic recovery, pandemic relief and racial equity."

The current forgiveness program for student loan debt through the Public Service Loan Forgiveness (PSLF) program and Temporary Expanded Loan Forgiveness Program (TELSF) are NOT effective. I am currently working with a former teacher who has incurred set back after set back in the completion of the Employer Certification form for the PSLF program. Paperwork "solutions" are NOT effective. I worked in education for 4 years as a substitute with a contracting agency which meant I was not technically a public service "employee". I worked for 9 years as a contractor with two non-profit to provide consulting services for small businesses right after the 2009 recession, again "technically" not an employee.

According to the National Association Student Financial Aid administrators, https://www.nasfaa.org/news-item/19700/Education_Department_Releases_New_Data_on_Public_Service_Loan_Forgiveness_Program, "Over 110,000 applications have been submitted for PSLF as of the end of June, but only 1,216 (or about 1.1%) have been approved, resulting in an overall loan discharge of about $52 million. The average amount of loan forgiveness per borrower was $61,592. Of those approved, 76% work for the government and the remaining 24% work in the nonprofit 501(c)(3) sector." As we continue to look at forgiveness and other "paperwork" solutions, we forget WHY student loans are such a financial problem to begin with. The people who benefit from 1.6 trillion billion borrowed are the financial institutions and the loan servicing companies. These are easy business models because they actually are just transferring risk from one entity to another. Instead of charging a FLAT FEE for the transfer of the risk, the government allows them to charge a STARTING 400% or more markup in terms of the interest rate. The banks borrow at 1-2% then use the same money to loan at 8% to 10%. The problem is the mechanics of the loan. 

A long term solution to STOP borrowers from owing so much debt through compounded interest is to ensure banks can not loan the money they borrowed at more than 300% and provide a CAP on the amount charged through an administrative FEE instead of the interest rate . Then the average debt borrowed would drop SIGNIFICANTLY since the loan rates would hover around 4-5% instead of 9-14%. A smaller interest rate means smaller compounded interest. Smaller compounded interest would encourage borrowers to pay back the loan (barring a recession or a pandemic). Like many Americans, I don't see a light at the end of the tunnel to pay back a $74,000 loan.

As an financial accountability partner, I have witnessed first hand the emotional toll of debt on borrower's who believed advancing education would lead to greater opportunities. For white Americans, it is true that more education leads to more opportunities but for people of color, sadly, the reality says advanced degrees does not lead to more opportunities. Advancing degrees just leads to more DEBT. For people of color, student loan debt at such a young age breaks the window of opportunity for financial wealth through homeownership. Urban.org wrote "In May 1995, President Bill Clinton released the National Homeownership Strategy (US Department of Housing and Urban Development 1995), an 87-page, 100-point plan with the goal that it would “boost homeownership in America to an all-time high by the end of the century.” President George W. Bush framed homeownership as a way to reduce racial inequality, and in 2003 signed the American Dream Downpayment Initiative to assist first-time homebuyers with obtaining a down payment (Bush 2003)."

If the goal is to continue racial inequities through government programs, like redlining that occurred and continues to occur in the Department of Housing and Urban Development, then the current student loan debt traps are RIGHT ON TRACK! As a country, do we want to fund programs that increase the racial wealth gap or do we want equitable solutions?

Read more about racial inequity through student loans @ https://www.demos.org/research/less-debt-more-equity-lowering-student-debt-while-closing-black-white-wealth-gap