↳ Higher+education

July 18th, 2019

↳ Higher+education

Student Debt & Racial Wealth Inequality

How student debt cancellation affects the racial wealth gap

The effect of cancelling student debt on various measures of individual and group-level inequality has been a matter of controversy, especially given presidential candidates’ recent and high-profile proposals to eliminate outstanding student debt. In this work, I attempt to shed light on the policy counterfactual by analyzing the Survey of Consumer Finances for 2016, the most recent nationally-representative dataset that gives a picture of the demographics of student debt.

When we test the effects of cancelling student debt on the racial wealth gap, we conclude that across all samples, across all quantiles, the racial wealth gap narrows when student debt is cancelled, and it narrows more the more student debt is cancelled.

With respect to the two presidential candidates’ plans, this means that the Sanders plan, completely eliminating outstanding student debt, reduces racial wealth inequality more than does the Warren plan, which only forgives $50,000 of debt, and phases that out for high earners. But the difference between the two plans as measured by the reduction in the racial wealth gap is not large. It would be fair to say that the Warren plan achieves the vast majority of the racial wealth equity gains that the Sanders plan achieves, while leaving the student debt held by the highest-income borrowers intact.

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