Student Debt and Social Justice

Passed just one month prior to the Voting Rights Act, the Higher Education Act of 1965 created a landmark definition of HBCUs as “any historically black college or university that was established prior to 1964, whose principal mission was, and is, the education of black Americans.” The act granted special funding, recognizing the heavy lifting these institutions had done in the long and often violent century between the Emancipation Proclamation and the Civil Rights Era. The spirit of the law was one in the same with that civil rights struggle: uplift. But, paradoxically, this lauded act also established a Federal loan program that has threatened an entire generation crippling debt—debt that has the power both to condemn a person to a generation of poverty and to blow the achievement gap wide open for our country at large. 

Student debt is a roadblock to social justice: 45 million Americans carry student debt, but Black college graduates owe an average of $25,000 more in debt than their white counterparts. That debt stands between them and the promise of financial security—the very reason why many pursue an education in the first place. That debt all but guarantees the vicious cycle of poverty and racial inequality in this country.  Yet, simply forgiving it won’t make the underlying problem go away. While cancelling student debt is a nice idea, waving a wand to make it disappear would fail to address any of the causes underlying the debt. In fact, if all student debt were forgiven today, in 15 years we would be right back where we started with $1.7 trillion in new student debt issued. Because borrowing levels are not tied to likely future earnings, colleges have little incentive to keep costs down as the burden is still carried exclusively by individuals and colleges still bear too little accountability. Fifty-six years after the Higher Education Act, it is time to ask colleges to insure their student outcomes. 

By guaranteeing a graduate’s earnings in the five years following college, we can encourage those students who do choose to attend to persist through to graduation with confidence. This reduces the default rates on the debt taken out, as a majority of those in default are students who tried college but never graduated. Insurance is a risk-transfer tool that will help spread the risk of a degree failing any individual graduate and raises the floor of outcomes for all students. A rising tide lifts all boats. Moreover, one in every ten years is a down economic cycle, and graduating into one depresses an individual’s lifetime earnings. As a Pell Grant recipient who graduated shortly after 9/11, I lived this story. By the time I paid off my loans, America’s college students had never lived in a world in which the Twin Towers still stood. 

By the time I had paid off that debt, I had a successful career in aviation and joined the board of a new charter school in Bridgeport, CT. Great Oaks Bridgeport served a largely minority demographic in an economically depressed city. As a board member, I was tasked with research to assure the best possible educational outcomes for our student body. However, while we initially focused on college admission as an indicator of success, we soon realized this was the wrong goal post: only 45.9% of Black students finish college in six years. This high dropout rate means that those students who do not complete school in six years, effectively drive themselves—and their families—further into poverty. It was then that I realized the marker of educational success had to be finishing college, not simply getting in. If a student’s income after college could be insured, then they could have a better shot at finishing and reaping the financial rewards of an undergraduate degree. 

This insight inspired me to found Degree Insurance; as CEO, I have crunched the numbers to know that forr $100M, we could guarantee the outcomes of every new student at an HBCU in America this year. For around $29 million, and with the necessary regulatory approval, we could guarantee the bachelor’s degree outcomes of every public college student in Connecticut. Under that model, states, NGOs, and even the federal government could purchase insurance today that would let colleges begin marketing this guarantee immediately and shore up their enrollment numbers.  There are many structures that could work to provide this relief—and provide a powerful tool in the quest for racial and economic equality. 

Higher education should be a key to inclusion; there is an undeniable link between academic access and economic success. The average undergraduate takes out an estimated $7,000 per year in debt, across five years of college. It will take them 21 years to pay back those loans with an average monthly payment just under $200. That same college graduate earns $1 million dollars more, on average, than they would have without a degree. However, while nearly 20 million Americans are currently enrolled in college, only six in ten of them will graduate from their college within six years. This disparity becomes more stark when we look at it by race: while 64% of white college students will finish in those six years, according to government data, only 40% of their Black classmates will. Those who don’t graduate are made poorer for having attended. We are so busy promoting college access and convincing every American high school student that they need to attend college that we don’t even realize we missed the mark. It is not attending college that leads to better earnings—it is finishing. 

Yet, while the average student takes out $35,000 in loans—slightly more money than the average American earns each year—that purchase is wholly uninsured. No one would ever suggest buying a car or an apartment or even a major vacation without some form of insurance. Student loans in default today are held chiefly by people who owe less than $10,000 but who didn’t graduate. These former students don’t see the corresponding growth in their paychecks.  College is the largest investment anyone makes that isn’t insured—and while a college degree is so central to economic advancement in America, pursuing one is a risk that can harm a student for a lifetime of earning.

As debt has the power to condemn multiple generations to poverty, wealth can accumulate as it is passed down and preserved through investments and inheritances. Yet, the mid-century American experience that enabled an entire generation of middle class Americans to taste stability and generational wealth was facilitated by a slate of financial products and Federal programs. These were denied to millions of Black Americans: the G.I. Bill, Mitchell-Lama housing, and mortgages, to give just a few examples. In The Color of Law: A Forgotten History of How Our Government Segregated America, Richard Rothstein makes a damning case for how both de facto and de jure segregation policies contributed to an America in which Black incomes on average are about 60 percent of average white incomes, but Black wealth is a mere 5 percent of white wealth. While legislation such as the Fair Housing Act of 1968 did some work to reverse the tide, it could not overturn a decades’ worth of wealth accretion Black families were denied. Thus the risk carried by Black families to send their children to college remains outsized and the debt required is often greater.

Furthermore, even if someone from a minority background did manage to break the cycle of poverty, starting college and not graduating can plunge their descendents back into it for a generation or longer. The number of Americans in poverty is growing at its fastest-ever rate, and the so-called “K-shaped” recovery from Covid will only exacerbate this trend—and perpetuate its attendant inequality. As McArthur-Genius Harvard Economist Raj Chetty has pointed out, the bottom quarter of wage-earning Americans have lost nearly triple the number of jobs as the top quarter have. This gap continues to widen, as Chetty’s real-time data affirms, disproportionately affecting Americans of color, who earn as little as 70￠ on white Americans’ dollar. 

Carter G. Woodson conceived of Black History Month on the 50th anniversary of the Emancipation Proclamation, but it wasn’t until our nation’s bicentennial that the Ford administration declared it as such. In the tumultuous Civil Rights struggle between those two dates, college campuses—particularly HBCUs—began their own traditions of observation that eventually culminated in the Ford administration’s recognition. Each winter, February offers a chance to remember and center the contributions Black Americans have made, and celebrate the vitality of Black culture. However, it must also be a chance to reflect on how we continue to fall short.

I believe in equal pay for equal study. Perhaps a college degree will not guarantee the same salary for all graduates. Perhaps education is not a magic wand that, when waived, can erase all traces of racism, bigotry, and discrimination in American society. However, it is a vital step in the right direction. The counterpoint to income inequality is not just attending a college, but earning a college degree. A college degree is still the best shot at closing the economic achievement gap. We need to make the American Dream accessible to more Americans.