Debt erasure is a simple, viable way to increase minority wealth.
Despite the size of the $1.3 trillion student loan crisis, loan forgiveness is not actually a far-fetched idea. A recent report from the Levy Economics Institute estimates that a one-time debt cancellation policy would grow GDP by $861 to $1,083 billion (2016 USD), create 1.2 to 1.5 million jobs, and slightly increase net budget deficit by 0.89% of GDP. Notably, $1.3 trillion is less than the $1.7 trillion GOP tax bill will cost.
Though young African Americans have remained half as likely as whites to hold a bachelor’s degree for about 50 years, black families have higher student loan debt. The racial disparity of debt suggests that loan forgiveness could mitigate racial wealth inequality. The 2016 Survey of Consumer Finances allows this mitigation to be estimated.
The amount of student debt is so high that the median household of every race group would see several thousand dollars of loans erased. Here is how this would impact each group’s existing wealth:
Since white households are so wealthy, their median wealth would hardly budge. On the other hand, black wealth would see a dramatic 55.2% increase, and hispanic wealth would go up 19.5%. Despite this, the racial wealth gap would not change meaningfully.
Though debt erasure would not tackle the wealth gap, it would serve as a meaningful stimulus for black and hispanic populations and may address other longstanding issues such as disparity in homeownership. Loan forgiveness is an affordable and sensical way to boost minority wealth.
All code used to process data and create graphs is on GitHub.
10 march 2018. filed under education, statistics, inequality, and race.