Reframing Student Debt Cancellation as a Racial Justice Issue

October 26, 2021

Red tinted image of a mortar board on a student's head

By Bethany Romano, MBA’17

Twenty years after starting college, white borrowers’ median student debt fell to 6%, whereas the median Black borrower still owed 95% of their loan. With student loans in the U.S. totaling $1.5 trillion, this mounting crisis became a key issue in the 2020 presidential election and remains a heated debate in Washington. 

Legislators in both houses of Congress have introduced resolutions calling for federal student loan cancellation, as have city governments in Boston, Washington, D.C. and elsewhere. Within two years, the U.S. went from considering student debt cancellation a pipe dream to arguing over how much to cancel.

Among the leading voices on this issue is Sen. Elizabeth Warren, who famously presented a student loan cancellation plan during her presidential bid. That plan — to cancel $50,000 in student debt for 42 million Americans while simultaneously shrinking the racial wealth gap — was built on decades of research spearheaded by Thomas Shapiro and colleagues at the Institute for Economic and Racial Equity (IERE). 

Building the Literature on Racial Wealth Inequality

Shapiro, the Heller School’s Pokross Professor of Law and Social Policy, has researched racial wealth inequality with colleagues at the Institute for Economic and Racial Equity (formerly the  Institute for Assets and Social Policy) for over 15 years.

“Wealth allows families to weather emergencies, and invest in a home, a college degree or a business. Without wealth, families and communities cannot be financially secure,” says Shapiro. The wealth gap between Black, Latinx and white families is not only massive — it’s growing at a breakneck speed. Tracking the same families over time, between 1984 and 2007, the wealth gap between white and Black families more than quadrupled from $20,000 to $95,000.

But the racial wealth gap is not just a manifestation of past injustice: Present-day policies are making it worse. Over the years, Shapiro and IERE colleagues have examined how homeownership, occupational segregation, tax policy, family inheritance and student debt contribute to the gap. 

“Well-meaning foundations, politicians and educational experts started pushing students to take loans, since they are low interest and mostly held by the Department of Education,” says Shapiro. “Now the total value of student loan debt in the U.S. exceeds all credit card debt. That was a wake-up call.”

He and others started to ask: Who was holding all that student debt? In 2019, Shapiro and his IERE colleagues Laura Sullivan, PhD’13, Tatjana Meschede and Fernanda Escobar, MPP’15, released a landmark report titled “Stalling Dreams: How Student Debt Is Disrupting Life Chances and Widening the Racial Wealth Gap.” In it the authors outlined a system in which Black and Latinx students are more likely to take out loans for college, borrow more money than white borrowers and default on their loans. 

“As somebody who has looked at racial wealth inequality for a long time, I didn’t have to think long and hard about why that would be the case,” Shapiro says. “African American and Latinx student borrowers finish higher education at a lower rate and come out with higher debt. So they pay more for college and get less out of it.”  

Perhaps most alarming, the report showed that 20 years after starting college, white borrowers’ median student debt fell to 6%, whereas the median Black borrower still owed 95% of their student loan. 

“One’s ability to pay back a loan is complicated. It has to do with the amount of loan in the first instance, the quality of your degree, the job you get, as well as who else in your family or kinship network you’re supporting, and any inheritance you can use to pay it back,” Shapiro says.

Elizabeth Warren Wants a Plan for That

In the spring of 2019, with over a dozen Democratic candidates in the primary, Warren decided her platform needed a policy solution to the student debt crisis. Her staff reached out to Shapiro to ask if he would help with the analysis. 

“The senator wanted a plan that would cancel the most debt for the most people, regardless of degree or whether they graduated. And it needed to be relatively simple: She had to be able to explain it in a short paragraph while standing onstage before an audience,” he says.

Shapiro was interested, and he wanted to include a racial wealth inequality filter in the analysis. Warren’s group agreed. He pulled together a team of volunteers, including Sullivan (now director of the Economic Justice Program at the New Jersey Institute for Social Justice), Louise Seamster from the University of Iowa and Raphaël Charron-Chénier from Arizona State University. 

“It’s an interesting policy puzzle,” says Seamster. “The student debt crisis is both created by and magnifying the racial wealth gap, and it can have complex effects. Some amount of cancellation can increase Black wealth significantly, but at some level it starts to benefit wealthy white people most of all, which exacerbates the racial wealth gap.”

Together, the team landed on a proposal to cancel $50,000 in student debt, with eligibility phased out for people who earn over $100,000. In their model, over 95% of borrowers would receive some cancellation, more than 76% would have their entire loan wiped out, and the racial wealth gap would shrink slightly for both Black and Latinx households. 

Warren announced her student debt cancellation plan based on the research team’s work, and it quickly entered the political zeitgeist. “It broke through the national discourse on student debt, while making sure that race was absolutely a part of that conversation,” says Shapiro. 

Unlike competing plans, Warren’s proposal contextualized student debt cancellation in terms of racial justice, noting that “the burdens of student debt are not distributed equally across all Americans: Our country’s student debt crisis is hitting Black and Latinx communities especially hard.”

IERE associate director Tatjana Meschede says, “This careful analysis found that $50,000 of student debt cancellation has the highest impact of reducing racial wealth disparities, an important marker of success; $50,000 has been circulated in many policy conversations since.”

It’s Not Whether — It’s How Much

In December 2020, Warren co-wrote an Op-Ed with Senate Majority Leader Chuck Schumer calling again for $50,000 in debt cancellation rather than the $10,000 President Biden pledged during his campaign. In early 2021, Warren, Schumer and others introduced House and Senate resolutions to the same effect. These items directly reference the background analysis by Shapiro, Seamster, Sullivan and Charron-Chénier. 

The issue seems unlikely to fade. Seamster notes that Warren’s proposal reshaped the public conversation drastically, “to the point that we’re now debating how much debt should be cancelled.”

“IERE’s research team helps explain racism’s impact on generations of Black and white college graduates, much like Heather McGhee’s metaphor of ‘the drained pool’ described in her book The Sum of Us,” says IERE director Maria Madison, referencing towns that chose to close community pools rather than integrate them in the 1960s. Student debt cancellation offers an opportunity to reframe the conversation around the racial wealth gap from a zero-sum game in which one group’s gain is another’s loss, to one where a rising tide lifts all boats — building equity in the process.  

“You can’t talk about student debt without understanding why it’s there, why it impacts some groups more than others,” says Shapiro. “I was really pleased with our work on Warren’s plan.”

“Now it all depends on where the politics land.”