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Dissecting policies and practices, offering solutions informed by scholarship and lived experience.

THE BIG PICTURE

Black grads aren’t making bad decisions about student loan debt

It’s the loans that are the bad idea.

The Emancipator/Nadia Snopek/Adobe

Aaron Mitchom learned the art of the deal from his mother. When he was a child, he and his five siblings would watch as his mother would negotiate to put food on the table.

“She would go into a McDonald’s or a Wendy’s and say, ‘Hey, look: I have $5 in my pocket. Let’s make a deal because I have to feed my kids,’” Mitchom recalls.

As a child, his initial reaction was embarrassment. But by the time Mitchom approached his teens that self-consciousness gave way to admiration. His mom’s bargaining worked.

“I said, ‘Mom. This is embarrassing. But it’s pretty cool that you can get a deal to feed us,’” Mitchom says. “I was impressed because I know she legit only had $5 in her pocket. Then, she tells me — and this is what changed my life forever — she said: ‘Aaron, this is deal-making. This is finance. The fact that they can do this on Wall Street every single day, but I can’t do it to feed my family makes no type of sense to me.’”

From that moment, Mitchom knew he would study finance. But later, as his graduation date from Morehouse College approached, he found himself in a situation he couldn’t as easily negotiate his way out of.

Aaron Mitchom in New York City on April 22, 2022.Jennifer Taylor for The Boston Globe/Jennifer Taylor

Though he had defrayed expenses by living with his grandmother, who stretched her pension income to help support him, Mitchom realized his student debt burden was higher than he expected because of the interest that began accruing the moment he entered the classroom.

“I said, wait, I’m actually in over $200,000 worth of debt and I am 22?” He recalls. “Even though I will have a good job lined up because I majored in finance, everyone else will have a way bigger head start than me because of generational wealth.”

Stay in school. It’s an American maxim, the path to the so-called American Dream. Or so we’re told.

“What is the master narrative that we tell ourselves over and over again, in policy conversations, in our national conversation? That master narrative is: If you go the college, and borrow student loans, you’re going to get a return on those student loans through your degree and the labor market,” says Jalil Bishop, co-author of the Education Trust’s report “Jim Crow Debt: How Black Borrowers Experience Student Loans” and co-creator of the National Black Student Loan Debt Study. “Well, that’s not happening for a lot of students, and it’s really not happening for Black students.”

We know there’s a gaping wealth chasm between Black and White American households.

We also know a key factor driving the financial gap is the staggeringly high cost of college and post-graduate education. Unequally distributed by race, this cost is often paid through student loans that saddle graduates with crippling debt.

That debt often means Black Americans, who already begin with a fraction of the wealth of White Americans, start their working lives financially underwater. These factors harm their credit; their ability to gain assets, and start and grow businesses; save for retirement; or pass on generational wealth — ensuring that the racial wealth gap persists for generations.

But what makes this a truly American phenomenon is the way the debt trap for Black students is wrapped in the promise of life, liberty, and the pursuit of happiness. Being exceptional, which Black Americans learn early on is a requirement for success, means going to college, even if it comes with the heavy debt burden.

Now, research by Bishop and others show that from the perspective of Black student loan borrowers, most of whom say they bought into that very American notion, it was a bad deal. Data prove them right: Student loans serve to widen the racial wealth gap, not bridge it.

Instead of solutions, Black borrowers get blame.

“We say, ‘Maybe those students aren’t going to the right institutions. Maybe they didn’t have the right information. Maybe they are not using all the resources available to them, like income-based repayment programs,’” says Bishop, an assistant professor at Villanova University who created the study specifically to look at the issue from the perspective of Black borrowers.

“But it isn’t the students that are uninformed or irresponsible,” Bishop says. “They’re essentially being set up for failure by a system we’ve been falsely led to believe is the only way to succeed.”

Mitchom and his fellow Morehouse classmates got a lifeline. At their 2019 commencement ceremony, billionaire investor and philanthropist Robert F. Smith announced he would pay off the student loans of the entire graduating class.

Graduates react after hearing billionaire technology investor and philanthropist Robert F. Smith say he will provide grants to wipe out the student debt of the entire 2019 graduating class at Morehouse College in Atlanta.Steve Schaefer/Atlanta Journal-Constitution via AP

Graduating debt-free was life-changing for Mitchom and his family. He was able to use his salary as an investment banker to help his family emerge from debt and put them, for the first time, on the path to generational wealth.

Instead of debt, Mitchom says, “My mom now has a portfolio.”

“I’m working on increasing my family’s net worth,” Mitchom says. “I want my family to be able to see what I see. I want them to be able to enjoy what I enjoy.”

Smith says he saw the elimination of debt as a way to give Black graduates access to what many other graduates have the moment they get their diplomas: Wealth-creating opportunities.

“Here is a group of students who already did the lift,” Smith tells The Emancipator. “They are graduating. They took the risk on themselves of taking out student loans, they put the burden of that risk on their families, and their families willingly did it. So when I looked at a way to truly liberate people, I thought this was an effective way to do it.”

Fixing the system means breaking and rebuilding it.

Lawmakers including Rep. Ayanna Pressley (D-MA), civil rights advocates, and even financial experts have called for the elimination of student loan debt to stem the racial wealth divide. That would be a good start, but it alone won’t fix financial systems. The inequities within them are intractable, a vestige of the devaluation of Black American minds, labor, and lives that is deeply rooted in slavery and stubbornly persists today.

This is why we must reimagine what reparations look like.

It’s not about transferring wealth from one group to another; it’s about the ridding of systems Americans must use to access the American Dream of built-in biases within them so equity becomes a reality and not just an ideal. It’s easy to see why student loan debt is the perfect place to start:

Eliminate federal student loan debt.

Student loans are a bad deal for everyone.

Student loan debt cancellation would add as much as $173.83 billion to the economy the first year after implementation alone, according to the Roosevelt Institute. Black borrowers would benefit the most, making complete — and not partial — student debt cancellation not only the best but also the most progressive approach to target the racial wealth gap directly.

This cuts directly against critics of full debt elimination, who say more focused, partial debt forgiveness is more effective because it would target those who need it most, while preventing wealthier people from receiving a windfall. But this argument is based on a misunderstanding on how wealth transfer works in White families compared with Black families.

The assumption about a potential windfall belies the fact that Black families carry more debt and have less earning power than their White counterparts. To put it plainly, eliminating student loan debt would not be a gift to wealthier White families because they are so much less likely to carry that debt in the first place.

White parents pay, on average, three times as much of their children’s tuition or student loan payments as Black parents, giving the average White recent college graduate a $17,000 wealth advantage over their average Black classmates, according to the Federal Reserve. Remember, that is on top of the additional $25,000 debt burden the average Black graduate has over their average White classmates.

The wealthiest Americans don’t have college debt at all — their families pay the tuition bill, sometimes through government-sponsored 529 saving plans that offer parents tax benefits.

Even after graduation, White college graduates often continue to receive financial support from their families to use toward building assets, like buying cars and putting down payments on new homes.

“The opposite is true for most Black people,” says Andre Perry, senior fellow at Brookings Metro and scholar-in-residence at American University. “They are actually expected, after they graduate, to give more of their income and or revenue to their families. Even while they are still in college, many Black people give portions of their student loans to their families.”

That is true, Perry says, even for higher-earning Black college graduates who would be most likely left out of targeted or income-driven debt forgiveness plans.

Black parents are also more likely to go into debt through Parent PLUS loans, according to a New America report, which found that these loans meant to help middle-class families close the college funding gap actually widen the racial wealth gap. Like unsubsidized federal student loans, these loans begin accruing interest the moment the money is dispersed, so they balloon during the student’s years, essentially leading to a Parent PLUS trap.

Income-driven repayment and increased options to postpone payment also serve as a snare that gets tighter the harder Black graduates try to free themselves from it. The smaller their loan payments on the front end of their repayment period, the more they pay on the back end as interest accrues and is capitalized.

Make public college free.

Of course, student loans wouldn’t be necessary in the first place if college were affordable. If a college education is a fundamental pillar of the American Dream, true equity requires it to be free.

A plan introduced by Sen. Bernie Sanders (D-VT) would make public community colleges and trade schools tuition-free, partly by taxing Wall Street. For students whose families make less than $125,000 a year, it would also eliminate tuition to public four-year colleges and universities, and private historically Black colleges and universities.

Making public colleges free would also indirectly stop predatory practices of private student lenders, which are out of reach of federal regulators because they are not federally subsidized. Banks should not profit off student indebtedness.

Require private institutions to repair the breach.

Spurred by students demanding racial justice accountability, a handful of private colleges and universities have begun examining how they have benefited from the institution of slavery and what they should do about it. This self-examination has come with mixed results so far: For example, while Georgetown University committed to donating at least $400,000 annually to support the descendants of 272 enslaved Black Americans sold in 1838 to save the institution from bankruptcy, some students accuse the university and and other similar institutions, most with massive endowments, of doing too little, too slowly.

Unlike public schools, federal and state lawmakers do not hold the power to eliminate private school tuition. But they still have levers to push change. Private institutions that receive some form of federal funding are barred from engaging in discriminatory policies and practices, just as public universities are. Title IX serves as a very good model — lawmakers can and should hold accountable institutions whose financial policies disproportionately burden Black borrowers by using the same stick.

Good old-fashioned shame works, too. Financial and tuition equity and abatement should be a factor in college rankings. The amount heavily endowed private institutions devote to eliminating the student debt of their graduates should be publicly scrutinized. Standing on the right side of history should not be elective.

Change the narrative about college.

What do Bill Gates, Steve Jobs, and Mark Zuckerberg all have in common, besides their ability to leverage their ideas of tech innovation into billions of dollars of personal wealth? None has a college degree. Each of them knew they had the privilege of dropping out of college to reach for their version of success.

That gets us back to where we started: the master narrative. Stay in school. That must be abolished, too.

Starting but not finishing college is the worst of both worlds for student loan borrowers, especially Black Americans who are already starting far behind the wealth starting line. What’s worse: For borrowers who do not graduate, their repayments terms start immediately — even though they are far less likely to have jobs that pay a livable wage.

That can make them feel trapped, staying in a college program and incurring more debt, because they don’t have the luxury to leave.

“If borrowers have high debt loads and they have a job, it’s hard to know if they can take leave or risk leaving that job,” says Fenaba R. Addo, a University of North Carolina public policy professor. “That is the opposite of what we are talking about when we talk about wealth.”

Employers must reassess the qualifications of positions, particularly those requiring college or higher-level degrees, to ensure they are actually needed to perform the job’s tasks and not merely serve as a barrier to employment.

It gets back to the American ideal: Freedom. Black borrowers have far less. It’s time to change that.


Kimberly Atkins Stohr is a columnist for the Globe and The Emancipator. She may be reached at kimberly.atkinsstohr@globe.com. Follow her on Twitter @KimberlyEAtkins.