Student Loans and the Racial Wealth Gap

Could student loan forgiveness help close the racial wealth gap?

The Federal Reserve's Survey of Consumer Finances reported white families had more than 7 times the wealth than Black families in 2019. Some Democratic lawmakers and progressive groups have been pushing for student loan forgiveness. They're proposing the cancelation of $10,000 or $50,000 in federal student loans. This could provide substantial relief.

Morningstar's director of investor education Karen Wallace and Morningstar's senior policy analyst Lia Mitchell took a closer look at the numbers. Let's see what they found.

The Federal Reserve's data showed nearly one in three households have student loan debt. Morningstar examined the data and found the median student loan debt for Black and African-American households was $26,000 in 2019. It was the most compared to other racial groups.

Now, let's break down how forgiveness programs could impact borrowers at different income levels.

What would forgiving $10,000 of federal student loans do? Debt would be eliminated from 34% of households in the lowest income class. And by forgiving $50,000, relief would reach 85% of households in the same group. Higher-income households would benefit from this, too. A significant amount of money would flow to these households since a higher percentage of them have loans.

Not everyone agrees that eliminating student debt up to a certain cap provides the most meaningful relief to those who need it most. However, forgiveness programs like these could give many student loan borrowers a leg up in overcoming their debt.