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Student Loan and Mortgage Debt and the Racial Wealth Gap

posted by Alan White

Forgiving student loan debt for low-income Americans could reduce the racial wealth gap among those households by as much as 50%, according to a new report from Demos and the Institute on Assets and Social Policy. Abbye Jo Atkinson has just posted an interesting paper arguing that mortgage debt reduction could likewise significantly reduce the racial wealth gap. Even reducing interest rates on distressed mortgages systematically (rather than randomly under HAMP and similar programs) would disproportionately aid minority borrowers, who disproportionately were assigned to the subprime market.

The 2008 foreclosure crisis devastated household wealth for black and hispanic families in the U.S. While the median net worth for white families declined from $193,000 to $142,000 between the 2007 and 2013 Survey of Consumer Finances, the median net worth for black families eroded from $19,2000 to $11,000.  Much of this story is about homeownership rates and home value declines, but another big piece of the net worth story is about debt, especially mortgage and student loan debt.

The Demos/IACL report notes that while young black adults are significantly less likely to attend college and to have a college degree, and have lower incomes than their white counterparts, they are nevertheless more likely to have significant student loan debt.

The racial wealth gap is fundamental to racial inequality in our nation. It means that the starting line for each generation is unequal. The initial distribution, of housing, education, and capital for each new generation is grossly skewed. The federal government owns most of the nation's student loan debt and mortgage debt (via the effectively nationalized and nominally independent GSEs), and could therefore legislate a variety of tailored debt reduction programs, that might begin to repay the nation's huge debt to the descendants of its former slaves.

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