The Effects of Student Loan Debt on the Racial Wealth Gap

Student Loans and the Racial Wealth Gap

In the last two decades, college enrollment by African American students has drastically increased. Over 2.1 million African American students have enrolled in colleges or universities in the last few years, in contrast to the 1.5 million in 2000. As of 2019, 29% of African Americans aged 25 to 29 also now hold a bachelor’s degree or higher, which is up from the 18% in 2000. And, as of 2019, approximately 40% of African Americans aged 25 to 29 have at least a two-year college degree, which is an increase from 26% in 2000.

However, by taking on a degree, many of these students are also taking on the burden of extensive student loans. To put it into perspective, 86.6% of African American students borrow federal loans. That’s significantly more than white students, and it does not even include private loans. Furthermore, African American students who receive a four-year degree or more hold almost twice as much in student debt as their white counterparts.

Yet, the debt figures are worse for those who choose to attend a Historically Black College or University (HBCU). Those students are often saddled with 32% more debt than graduates from other public or nonprofit four-year schools because of recent federal aid changes and lack of funding.

Because of the student loans, many African American graduates are finding it hard to even live paycheck to paycheck, let alone acquire any wealth to decrease the racial wealth gap that exists in our society. 

“[With student loans,] it means that some months there’s only a couple hundred dollars until the next paycheck,” said Jamilah Williams, 30. “I’ve never had extra left over each month to actually save anything.”

And, with that heavy burden placed on these graduates, African Americans, who often earn less than white graduates, are more likely to be behind on payments and eventually default.

Ways to Decrease or Even Eliminate Student Loan Debt

It is evident that there is a fault in our system. Many African American students go to college to help create a better life for themselves and their families, as well as help close the racial wealth gap that exists between minorities and white Americans. Although armed with a quality education, these graduates are now saddled and overburdened by a student loan debt that is now hindering them to create wealth. This only causes more of a divide. 

Eliminating student loan debt is one solution to the problem that some politicians have proposed, including Senator Elizabeth Warren and United States President Joe Biden. However, the relief does not accommodate students who have taken on private loans.  

Entrepreneur and philanthropist Robert F. Smith has another, potentially more realistic solution: The 2% Solution. This solution advocates that companies in the United States invest 2% of their profits over the next 10 years into communities that have been greatly affected by the racial wealth gap. These investments would have a major impact on aspects like African American education. And one option for investment is Student Freedom Initiative.

Student Freedom Initiative 

Conceptualized by Smith, Student Freedom Initiative is a nonprofit organization dedicated to ensuring freedom in professional and life choices for students attending Minority Serving Institutions (MSIs). Launching in the fall of 2021 at participating Historically Black Colleges and Universities, Student Freedom Initiative offers students a chance to take advantage of the program’s mentoring, tutoring, internships and more.

Qualifying juniors and seniors majoring in an approved STEM field will also be able to apply for an income-contingent funding option for education costs known as the Student Freedom Agreement. Unlike traditional, high-cost loans, the Student Freedom Agreement allows graduates to make payments based on income, and a fixed number of payments can be deferred for any reason. All payments made will be put back into the program to fuel the loans of future generations.

“The Student Freedom Initiative is inspired by our common goal of liberating the human spirit by removing the systemic barriers that prevent students from maximizing their opportunities in life,” said Smith. “By addressing the financial stress of college and providing students with resources and community, we can finally broaden the talent pipeline and create a more diverse and thriving economy.”

Robert F. Smith’s Gift to Morehouse College

Before helping to formulate Student Freedom Initiative, Smith made one of his most generous donations to African American education and wealth advancement to date. In May 2019, Smith made a commencement address at Morehouse College, committing to pay off the student loans of the approximately 400 graduates. His gift totaled around $34 million dollars and changed the lives of so many African American men. With their student debt eliminated, the students were able to buy homes, take chances with their careers and even acquire wealth. Most importantly, the Morehouse students are giving back, helping to pay Smith’s generosity forward.

To see if you are eligible to receive funding through Student Freedom Initiative, visit the eligibility section on the website