Student loans are holding back middle-class borrowers, study finds
Student loans have failed to deliver on their promise of a middle-class life for millions of Americans, and America’s system of financing higher education through individual borrowing is deepening inequality in the country, according to a new report. study.
According to the report by the Jain Family Institute, a nonpartisan research organization, the salary premium that comes with attending college has not been enough to allow student borrowers from disadvantaged backgrounds to build wealth. He cites the large number of debtors who have not even been able to meet interest payments, meaning they now owe more than when they originally borrowed the money.
An analysis of the cohort that took out loans in 2009 found that less than half had repaid them a decade later. In black and Latino neighborhoods, about 75% and 60% of borrowers respectively had balances above the original loan amount, compared to 50% in white neighborhoods.
“If the university really offered borrowers a stable and reliable wage premium, after a normal 10-year amortization schedule, the percentage of unpaid student debt would approach zero,” writes Laura Beamer, the author of the report. “The inability of borrowers to repay their debts, or have loan revenue forecasts come true, indicates that the university is not profitable in the labor market.”
President Joe Biden’s plan to cancel some student debt has an income threshold, with only people earning less than $125,000 eligible for cancellation. But the Jain report — which pushes back against the idea that debt relief automatically favors wealthier Americans — argues that wealth, rather than income, may be a better guide.
He finds that most student debt is held by Americans in the bottom 25% of the population, even though some of them have reached higher incomes. Wealthier cohorts generally have less of a burden because “these groups do not take on debt to fund their education,” the report says. “Debt financing of education exhibits a regressive distribution across income, race, class, and gender.”
The study also highlights the double burden faced by many Americans who have taken out loans to pay for their children’s education even as they still struggle to repay theirs. About a third of black and Latino borrowers under the Parent PLUS program are in this situation, he says.
“Debt, rather than wealth, is now the cross-generational term in people’s minds,” Beamer said in an email. “Parent PLUS borrowers in financial difficulty should receive more substantial relief.”