Monday, March 12, 2018

The Racial Dimension of Student Debt


Compare the two charts above. They show median wealth of households headed by black individuals (top chart) and white individuals (bottom chart) between the ages of 25 and 40 in successive waves of the triennial Survey of Consumer Finances, with and without student debt. (Credit to Matt Bruenig for preparing these data from the SCF.)

by Gaius Publius

Student debt is increasingly burdening everyone, but that burden disproportionately weighs on black households.
—Marshall Steinbaum (source)

As an interim addendum to our short series, "Killing a Predator — Cancelling Student Debt" — Part 1 here, Part 2 here — consider the observation above by Marshall Steinbaum, one of the co-authors (with Stephanie Kelton, Scott Fulwiler, and Catherine Ruetschlin) of the Levy Institute paper on student debt cancellation we've been looking at. It comes from a more general piece Steinbaum wrote for the Roosevelt Institute discussing his Levy Institute paper. I'd like to focus here on just that observation.

Before we look at more of what Steinbaum wrote, please note three things about the charts above.

First, consider the differing degrees to which student debt subtracts from the wealth of young black households and white households. The takeaway from that should be: No, canceling student debt would not mainly benefit the rich. It actually disproportionately benefits black households when measured as a percentage of household wealth.

Second, look at the vertical scales of the two graphs, their Y-axes. The numbers are not the same.  The top charted point (peak of yellow line) for young white households is $80,000. The top charted point (peak of yellow line) for young black households is slightly more than $18,000. That's a peak-to-peak wealth differential of greater than 4:1.

Worse, the actual wealth of these black households in 2016 is less than $4,000 (blue line, top chart), compared to more than $40,000 for white households in the same year (blue line, bottom chart). In other words, the 2016 wealth differential is more than 10:1.

Canceling all student debt would bring that differential down to "just" 5:1 — still shameful for a society like ours, but it shows what a great boon student debt cancellation would be for young black households.

Finally, note that from 2013 to 2016, white wealth for these households has recovered somewhat from the Wall Street–caused "great recession" while black wealth has recovered not at all

Now Steinbaum:
One thing that immediately becomes clear upon investigation of the student debt crisis is the extent to which it is a creature of this country’s legacy of racial discrimination, segregation, and economic disadvantage patterned by race. My prior research with Kavya Vaghul found that zip codes with higher population percentages of racial minorities had far higher delinquency rates, and that the correlation of delinquency with race was actually most extreme in middle-class neighborhoods. What this tells us is that student debt is intimately bound up with the route to financial stability for racial minorities.

In that work, we ascribe this pattern of disadvantage to four causes: segregation within higher education, which relegates minority students to the worst-performing institutions, discrimination in both credit and labor markets, and the underlying racial wealth gap that means black and Hispanic students have a much smaller cushion of family wealth to fall back on, both to finance higher education in the first place and also should any difficulty with debt repayment arise. The implication is that while higher education is commonly believed to be the route to economic and social mobility, especially by policy-makers, the racialized pattern of the student debt crisis demonstrates how structural barriers to opportunity stand in the way of individual efforts. Insisting that student debt is not a problem amounts to denying this reality.

Looking at the time series of median wealth for households headed by black and white people between the ages of 25 and 40 (what we refer to as “white households” and “black households”) in successive waves of the Survey of Consumer Finances (SCF) [see charts above] reveals these racialized patterns. ... By this measure, the racial wealth gap (the ratio of the median wealth of white households in that age range to the median wealth of black households in that age range) is approximately 12:1 in 2016, whereas in the absence of student debt, that ratio is 5:1.

Moreover, while overall net household wealth levels for the non-rich increased between the 2013 and 2016 waves of the SCF for the first time since the Great Recession did violence to middle-class wealth, rising student debt weighed in the other direction—especially for black households. The time trend from these charts is clear: Student debt is increasingly burdening everyone, but that burden disproportionately weighs on black households.
Steinbaum refers to another study to explain why this is the case (emphasis mine):
A 2016 paper by Judith Scott-Clayton and Jing Li offers clues, since it tracks the debt loads of black and white graduates with four-year undergraduate degrees. They find that immediately upon graduating, black graduates have about $7,400 more in student debt than their white counterparts. Four years after graduating, that gap increases to $25,000. The crucial difference is simply that white graduates are likely to find a job and start paying down their debt, more-or-less as the system is designed, but black graduates are not—they carry higher balances, go to graduate school (especially at for-profit institutions) and thus accumulate more debt, and subsequently earn no better than whites with undergraduate degrees.

What this suggests is that any given educational credential is less valuable to blacks in a discriminatory labor market (probably because they attended less well-regarded institutions with weaker networks of post-graduate opportunity, and also because even assuming they did attend the same institutions as their white counterparts, outcomes for black graduates in the labor market are mediated by racial discrimination). ... The assumption that debt-financed educational credentialization represents constructive wealth-building and social mobility thus reflects a failure to comprehend the landscape of race-based economic exclusion.
The interaction of student debt with "race-based economic exclusion" provides a powerful argument for student debt cancellation all on its own. Something to keep in mind as this idea enters public discourse.


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At 9:37 AM, Anonymous Anonymous said...

This is proof that this nation has no interest in investing in America's future. If this had been the attitude which dominated societal thought 100 years ago, broadcast radio (and its successor television) would never have developed like it has as technology. Radar would likely have been almost exclusively a British technology, aircraft development would largely have been of foreign origin, forget about rockets, missiles, and space technology, and no atomic bomb (for which I'm sure that the residents of Hiroshima and Nagasaki would have preferred.

This nation is now too stupid collectively to have done any of these things, and so very much more. It will remain stupid as long as too many citizens proud of their ignorance remain ensnared in religion and eschew science.

At 6:54 AM, Anonymous Anonymous said...

When the ONLY motive for society's commons is profit, this is what you end up with.

We have a society that profits on all facets of life and death and cares nothing about making itself healthy, vibrant, enlightened and universal.

GP, with the sad death of Hawking, can you do a column on his projection that, should humans do nothing about population growth, the energy consumed to warm our homes and so forth would turn earth into a ball of fire in 6 centuries. Yes, I know we'd never get there due to food, water and waste limits, but the projection was allegorical.

At 2:42 PM, Blogger johnny phenothiazine said...

I'm not trying to dismiss the great difference between the wealth of black families and the wealth of white families. But it may be worth noting that when you talk about the wealth of families near the median, if you're considering the wealth of a family which owns a house, their equity in that house is probably ninety percent of that wealth.

Yet that isn't wealth comparable to cash in the bank, where you are free to take the money out and spend it. If you want to get your money out of your house equity you can either sell the house - and then do what, live in your car? - or else take out a home equity loan and risk losing your entire investment.

But now imagine that 52% of white families are home-owners and 48% of black families are home-owners. In that case the median-income white family owns a house, and the median-income black family does not, and that could account for at least some of the startling ten-to-one difference between median wealth. Of course I just made up those 52% and 48% figures. I'm very curious as to what the true figures are.

Home-ownership by black families and white families is an interesting topic for more research, particularly looking at intra-generational home-ownership. A white person might own a house he inherited from parents or grandparents, and that might be impossible for a black person whose parents or grandparents were systematically denied the opportunity to buy houses through racial deed restrictions prior to 1948, as well as systematic red-lining even after those deed restrictions were prohibited by Shelley vs. Kraemer.


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