Cancel All Student Debt

by Andre Perry

Renowned education reformer Horace Mann said in 1848, “Education, then, beyond all other devices of human origin, is a great equalizer of conditions of men — the balance wheel of the social machinery.” Numerous reformers have used similar language to express variations of that idea, including that education is the civil rights issue of our time.

They were lying.

A person’s wealth has always strongly influenced the quality of the education that person receives. Wealth is the sum total of all assets owned minus debt held — a person’s net worth. People who have enough wealth to pay for college out of pocket, start a business and purchase homes are much more likely to attend higher-performing schools, go to college and hold political office. People who have little to no wealth, on the other hand, too often must go deeply into debt to pay for their education, which can cause them to fall further behind economically.

In other words, education doesn’t predict for wealth; wealth predicts for education. The promise of education as an equalizer will always be a false one, unless we actively seek to change the wealth divides in this country and cancel student debt.

As more students take out more loans for increasingly large amounts, the student debt crisis — and proposals to mitigate it — has taken greater prominence in national policy debates. However, if we don’t focus on those who have been most impacted by that crisis — people who’ve been denied wealth — we could make matters worse. Currently, the median net worth of a white household is 10 times more than the median net worth of a Black household.

Federal student debt cancellation and free universal public college are examples of programs that, if adopted, would not need means tests in order to have ameliorative effects on the racial wealth gap. Such universal programs would prevent Black students from being saddled with debt in their attempts to achieve the American dream.

We come to this conclusion based on findings of a new Brookings Institution report, “Student debt cancellation should consider wealth, not income,” that I co-authored along with Carl Romer. 

Education doesn’t predict for wealth; wealth predicts for education.

Critics of universal student debt cancellation often focus on the supposed injustice of forgiving the loans of higher-income professionals, missing the reality that many Black families have comparable incomes to their white peers, but have much lower wealth because of past discrimination.

Some argue that debt cancellation is a regressive policy that unfairly and disproportionately aids already affluent individuals at taxpayers’ expense. But these broadside critiques often miss three key details of the labor market. First, while individuals with student loans do have higher incomes, an American Economic Association study showed that they do not have statistically significant higher hourly wages, suggesting that student debt is forcing loan holders to work longer hours. Second, student debt pushes graduates to choose work they are less passionate about and away from public interest careers that offer lower salaries relative to corporate work. Third, recent graduates with student debt take jobs that have higher initial salaries but lower potential wage growth, according to a study in the Economics of Education Review.

This country needs a highly educated populace to advance society. The richness of reading, writing and conversing with others in college can propel individuals to unimaginable heights. Our economy needs effective workers to maximize GDP, artists who unleash our imaginations, researchers who can see the big picture and make leaps in scientific and technological innovation, and journalists who can hold governments and corporations accountable. Individual and societal prosperity is certainly linked to education.

But, while higher levels of education do lead to greater wealth, our nation’s economic and social progress will be stymied if we don’t try to close the racial gaps associated with student debt that continue to hold too many Black and Brown people back no matter how far up the academic ladder they climb.

The racial achievement gap is driven by the wealth gap. To reform education without restructuring the way wealth is distributed is like trying to heal sick fish in a poisonous lake.

If we really want all children to receive a quality education, go to college and live their best lives, then we should be doing everything we can to increase the net worth of low-wealth students in high poverty districts while providing them with a quality education. That can be done, generally, in three ways. First and foremost, increase the assets people own (homes, businesses, 401Ks). Second, to a lesser degree, remove certain debts (student loans, hospital bills, credit cards). And finally, eradicate the racism that extracts value and wealth from Black and Brown people.

Our report shows that debt cancellation can be part of the solution. To examine the effects of different debt cancellation policies, we plotted the net worth and wealth percentile of Black and non-Black households. By examining household net worth at every wealth percentile, we show that cancelling debt shifts wealth up across the distribution. This shift disproportionately helps wealth-poor Black households (see the graph below).  

Education reform in this country has fastidiously tried to fix people instead of trying to solve for the racial wealth gap. This is by design. Education reformers profess to want a more equal system, but they’ve made little progress because they have yet to attack the racial hierarchies that are inextricably linked to wealth and that no amount of education can fix.