- The Biden administration is reportedly planning to cancel $10,000 in student debt for some borrowers.
- Communities of color, especially Black borrowers, are disproportionately affected by student loans.
- The plan fails to address systemic issues that make loans necessary in the first place, experts say.
As immigrants from Trinidad and Tobago, Toneva and her parents were virtually clueless when it came to the labyrinth of America's credit and loan system.
"We just thought we had no choice but to apply for loans. We didn't know there were any alternatives—there's no education around this for immigrants," Toneva, who requested to go by her first name to protect her privacy, said.
Toneva and her parents co-signed around $30,000 in student loans when she applied to UMass Amherst for college. When she graduated during the economic downturn in 2010, saddled with debt and unable to find a job that paid enough to repay the time and money she spent on her college degree, Toneva said she spiraled into feelings of dejection.
"I felt bamboozled, like I'd never catch a break," she told Insider.
Unable to pay off her loans, Toneva found the amount she owed ballooning. By 2021, she owed around $55,000 in federal loans and $40,000 in private debt.
Toneva isn't alone. Her experience reflects those of many student loan borrowers who find themselves shackled with debt.
Pressure has been mounting on the Biden administration to forgive at least some portion of the $1.75 trillion in student debt that's owed in America. In May, the Washington Post reported that Biden is considering a plan to cancel $10,000 in student debt for borrowers who make under $150,000, or less than $300,000 for married couples.
For many borrowers, especially borrowers of color, the relief is welcomed. Communities of color disproportionately shoulder the weight of student loans: Black borrowers typically owe 50% more than white borrowers at graduation, according to civil rights groups, including the National Association for the Advancement of Colored People (NAACP) and the American Civil Liberties Union (ACLU).
The disparities only worsen with time, leaving Black borrowers saddled with debt for longer. After 20 years, the average white borrower owes only 6% of their debt, compared to the average Black borrower, who owes 95% of their debt, a report by Brandeis University found. Black student-loan borrowers default on their loans at five times the rate of white graduates, according to an analysis by Brookings.
But while Biden's reported debt forgiveness plan could help ease the debt burden on already marginalized communities, both borrowers and experts say it fails to solve broader systemic issues that perpetuate the racial wealth gap.
"We need real solutions, not the band aid ones," Toneva said. "We need solutions that address long-stemming, systemic issues like predatory lending, consumer protection, and the racial wealth gap."
Student loans disproportionately affect Black borrowers.
Of the estimated $393 billion that would be forgiven under Biden's reported plan, approximately 22% would go to Black borrowers, according to Matt Chingos, vice president of the think tank Urban Institute.
Those forgiven dollars could help close the racial wealth gap, experts said, since it would free up money that would enable borrowers to move forward with their lives and start building wealth.
That's especially the case for borrowers of color. Black households are more likely to take on student loans than white households in the first place, at least in part because Black students' parents tend to have lower total incomes, according to Persis Yu, policy director and managing counsel at the Student Borrower Protection Center.
Student loans can leave marginalized communities in a cycle of debt and perpetuate wealth disparities. Around a quarter of Black borrowers said they had a hard time affording basic necessities like food, rent, and healthcare—let alone other means of social mobility and building wealth, a study by The Education Trust found.
"It affects their ability to pay for their kids' education, their ability to save for retirement, and what they're able to spend in the community," Yu told Insider.
Toneva, a single mother, said she and her daughter experienced homelessness for a few months. On top of that, Toneva didn't qualify for a secure credit card because of her student loan debt, and she felt scared whenever she applied to jobs at companies, which often run background checks on applicants' credit and loans.
"Debt cancellation is a hugely important step to remedy what has been decades of a student-debt system that's fallen on Black and brown communities the largest," Yu said.
Biden's plan would do little to address sky-high college costs.
Biden's reported plan has its limitations. Using income as a way to determine who does and doesn't get their loans forgiven can be flawed, experts said.
"Income is a very imprecise measure of resources and the demand that the borrower's family or community have on that income," Yu said. "If you're also supporting your siblings going to college or sending money back to your parents, those resources can be eaten up pretty quickly."
The bureaucratic issues of proving income could also undercut the program's effectiveness, and leave borrowers who need the relief the most in the dust.
A $10,000 debt forgiveness program would do little to address broader systemic issues—like expensive college costs and a troubled lending system that disadvantages people of color—that make student loans necessary in the first place, according to critics. The average cost of college in the US is more than $35,000 per student per year, including books, supplies, and daily living expenses, according to the Education Data Initiative.
"The Black community continues to be shackled by student debt, and $10,000 in cancellation will not break the chains," Wisdom Cole, the national director of the NAACP's youth and college division, said at a White House rally in May.
Changing the system.
Experts and policymakers are split on what a better plan might look like. Some advocates say canceling $50,000 in student debt per person is the only solution.
There are other options, too. Targeting loan forgiveness based on the borrower's income when they were in college and taking out the loan, rather than on current income, could also help distinguish between those who had to borrow out of necessity versus those who took a grant to go to a better school, Chingos said.
If the government were to restart loan repayments, which it paused in March 2020, it should do so in a responsible way that ties repayments with loan forgiveness, according to Chingos.
"It could be a way of getting people to re-engage with the system," Chingos said. "If they've lost touch with the system and they end up defaulting on their loan, that's going to hurt their credit. That's going to have a bunch of negative consequences, and I'm not sure we really helped them that much by taking their balance from $12,000 to $2,000."
But borrowers like Toneva aren't waiting around for government action.
"The system is shot," she said.
This year, Toneva was able to get all of her debt canceled after receiving assistance through MassLEAP, a program run by the Boston-based nonprofit Economic Mobility Pathways that aims to help stabilize families.
"It was just completely freeing," Toneva told Insider. "I don't have to worry about passing on debt to my daughter… It's a beautiful feeling, to know I can instead pass down generational wealth to her."