Forgive Us Our Debts: The Racial Inequity At The Root Of The Student Loan Crisis

The “student debt crisis” is not a monolith; it masks a range of underlying dynamics. The average undergraduate leaves college with a hefty but perhaps manageable $29,900 in debt, and recent cohorts have a default rate of less than 10%. 

Higher balances generate headlines, but they often represent the system working as it should. For instance, the freshly minted Harvard MBA typically graduates with $86,375 for a two-year program—and a very low chance of defaulting. (Full disclosure: I left with $108,000 in debt when I graduated with my MBA in 1999.) 

But examining the racial divergence in student loan balances reveals underlying issues in our higher education system that demand resolution. At graduation, the inherited inequity in American wealth has already manifested in students’ lives: According to TICAS, Black students are 23% more likely than their white peers to borrow, and among those who borrow, they borrow more ($34,000, vs $30,100). The racial disparities of higher education both precede the commencement stage—and the debt that students carry across it—and reach far beyond. 

Debt but no degree

While college completion rates have been steadily rising, they remain lower than we might expect—just under 60% of students graduate in six years. But, this aggregate figure fails to tell the whole story, as the numbers are far lower among certain populations of learners. Among Black students, across all institutions, only 41% finish a degree in six years. 

The reasons for the completion gap are complex. Significant funding disparities in our public school systems create inequities in academic readiness that cut along racial and class lines. Remediation options once entering higher education have earned a failing grade. Many institutions—including, regrettably, WGU, where I am President—have achievement gaps that reflect socioeconomic disparities in our society, rather than fully correcting them. Many institutions, including WGU, have committed to closing these gaps. But institutional commitment alone won’t solve the problem: research on Pell-eligible students, who also face a significant completion gap, has determined that much of that gap can be explained by differences between institutions, rather than achievement gaps at specific institutions. Structural reasons, such as a lack of information and guidance, and concerns about paying for college lead underserved students to disproportionately select into institutions with weak student outcomes. 

Students take on debt in pursuit of a degree. If they aren’t able to earn one, their ability to repay their loans is limited. Nearly 50% of student loan borrowers who don’t make it to graduation end up defaulting on their loans. Black students who drop out are almost three times likelier to default than those who graduate. 

Debt after the degree

But while graduation reduces defaults, it doesn’t make the debt problem go away. Long-term analysis on student loans reveals that 12 years after enrollment white students who graduate with a bachelor’s degree were able to pay off an average of 53% of their original loan balance—those who dropped out only paid back an average of 17%. Graduating from college makes a big difference.

But for Black students, the numbers aren’t just worse, they call into question the value of the higher education enterprise altogether. 

Twelve years after enrollment, Black students who dropped out, on average owed 106% of their original balance. Their debt burden, over a decade later, is actually heavier than when they originally took out their loans. But sadly, Black students who held degrees don’t fare any better: a dozen years after graduation the average Black bachelor’s graduate owed 114% of their original loan balance. How is it possible that despite holding a degree, the average Black graduate isn’t able to make a dent in their debt balance? Worse, it’s gaining on them!

Renewing the promise of higher education

The Brookings Institute estimates that the relatively small racial gap in student loan debt at graduation grows to nearly $25,000 within four years, compounded by a series of disparities that might be slight in and of themselves, but which, taken together, have significant effect. These include racial pay gaps, differences in student majors, disparities in social networks that can connect students to good jobs, and the greater likelihood of Black students taking on debt to attend graduate school. It adds up: long-term default rates for Black students are five times higher than their white peers.

The result is that while education does unlock opportunity, our higher education system as currently conceived is wildly ineffectual at addressing long standing racial divides in wealth. 

What can be done?

First, an outcomes-focused approach to higher education would benefit all students—but it would benefit Black students the most. We should measure institutions by their ability to help students make progress in their lives—to persist, complete school, and thrive financially. We have to hold institutions accountable for advancing outcomes, and disrupt the mechanisms and systems that effectively track students of color and from low-income backgrounds into institutions with weak performance or programs misaligned with opportunity and the world of work.

Second, borrower education does make a difference. At WGU, in 2013 we instituted a Responsible Borrowing Initiative to make sure every student understood the implications of the financial decisions they were making—and understood their choices. Since then, our average debt per student at graduation has fallen every year, by a cumulative 32%, from $21,102 in 2013 to $14,254 in 2020. At WGU, our students of color owe slightly more at graduation—$14,489—but we are working aggressively to close that remaining gap.

Third, we have to design and scale programs in which every student can learn and has the freedom and support to make progress. Personalization is key to equity: the factory model of education that persisted in the past left many students behind, especially when time, or the credit hour, is the primary measurement of learning. Programs that give students the flexibility to learn at their own pace and focus on mastery, rather than time, enable more students to succeed than programs that march all students through a one-size-fits-all curriculum. 

And of course, the costs of college—in tuition and time—must be addressed.

Post-secondary education is the surest path to opportunity—but it is not an equitable one, and for some students it has been a bridge to nowhere. Every institution must take stock of their own racial gaps in access, attainment, student debt, and long-term student prosperity. But we must also address the systemic issues in how we fund and regulate higher education, as well in how we teach, advise, and counsel students. Regardless of where one stands on forgiving debt, we should all agree that the promise of higher education needs reinvigorating—and that calls for debt forgiveness should be coupled with mandates for true reform.