NASHVILLE, TN – President Biden has just barely put his toes in the water when it comes to cancelling $1.6 trillion dollars of student debt. He’s okay with forgiving borrowers up to $10,000 in unpaid loans. That’s welcome news for people who only owe that much. But it’s too little for Black and Latino borrowers who most need debt relief.
“You basically have an entire generation saddled with debt,” said Rep. Ro Khanna (CA, 17th District).
More than a third of the 80 student loan bills introduced during the 116th session of Congress concerned loan forgiveness. Progressives like Elizabeth Warren, Ayanna Pressley, and James Clyburn each introduced bills to forgive up to $50,000 of student debt. None of them passed. They will have to be introduced again in this session. It will be a long hard slog to convince Biden, centrist Democrats, and the Republicans that this is not just fair play but good policy.
Khanna hopes President Biden will eventually come around to using his executive power to do some real good.
“American who are making less than $125,000 a year, we need to forgive those loans and we have the capacity to forgive those loans. The president has the power,” Khanna said last week.
Black and Latino students make up a disproportionate share of students with large debt balances. Of every 100 college students 29 are Black or Latino. Twelve years after they start college, of every hundred borrowers who owe $50,000 or more, 37 are Black or Latino. The disparity is not the difference (8) but the division of the difference by the number of minority students (29)=28%.
Three quarter of loans owed by borrowers living in Black communities now exceed their original balance, according to the Jain Family Institute. In cities across the country, communities of color are struggling under the weight of student debt. In 2020, the Student Borrower Protection Center looked at loan debt by zip code in Washington D.C, Philadelphia, and San Francisco. They found the highest default rates in minority neighborhoods.
A borrower in a neighborhood with a majority of people of color is 2.6 times more likely to fall behind in repayment. In a 75 percent-minority neighborhood, a borrower is 4.2 times more likely to fall behind. In a 90 percent-minority neighborhood, a borrower is 5 times more likely to fall behind. (see Graph)
These disparities are caused by a number of things. For example, parents of minority students have less wealth to contribute towards their children’s education.
White students average about $11,679; Black students just $4,217, according to a National Postsecondary Student Aid study in 2018.
If your parents aren’t rich that is a disadvantage but in that case, you will get more federal aid if you fill out the Free Application for Federal Student Aid (FAFSA). And if you didn’t win a full scholarship to Harvard, you are not alone. You can get grants (and loans) to many good public and private colleges. You can get federal loans and private loans to pay for higher education.
So why worry? Because there is a whole industry, two actually, geared to exploiting poor people who want to better themselves by getting a good education and afterwards, a good job.
For-profit colleges steer students towards private bank loans to pay for tuition.
Sometimes they are worth the investment. Oftentimes, they are not. An example of a sham for-profit college was Trump University, which opened in 2005, operated for five years without a license, and closed down in 2010. Just after his inauguration in 2016, Trump settled for $25 million to be done with a big lawsuit and the money went to the students he had defrauded.
An example of a sketchy lender is Sallie Mae, once a government agency that serviced federal education loans. Sallie Mae previously originated federally guaranteed student loans and worked as a servicer and collector of federal student loans on behalf of the Department of Education. It made loans and was a debt collector, too. In 1997 it went private.
On April 30, 2014, Sallie Mae spun off its loan servicing operation and most of its loan portfolio into a separate, publicly traded entity called Navient Corporation. Navient tricked student borrowers into taking loans that never should have been offered in the first place. Attorneys General in Illinois and Washington, and 27 other states, filed suit in 2017.
“Sallie Mae used private subprime loans — some of which it expected to default at rates as high as 92 percent — as a tool to build its business relationships with colleges and universities across the country.” (Source: New York Times, April 9, 2017)
Rick Castellano, Sallie Mae vice-president, said Sallie Mae is a separate company from Navient and has been for more than seven years. It is now a bank that makes private student loans. Castellano said 97% of Sally Mae borrowers are paying off their loans and less than 2% are in default.
Andreas Campos was 19 when she enrolled in the criminal justice program at Heald College in Hayward, California.
“I feel like I was really deceived by the recruiters. I’m a first generation college student and was raised by my grandparents,” Campos said. She took out a loan to pay for her education.
One semester away from completing her degree Campos took off a semester because of a family issue. When she went back to finish up, Heald College had closed up shop.
“I thought in order to be successful and have a better future I should put a limit on the financial burdens of education but I come to I find out later, those numbers were not realistic based on the job I was able to get, which was none, and that was really hard for me,” she said.
There is a legal borrower’s defense to cancel student debt if the school you were attending shuts down. Heald played fast and loose with Campos. They told her that her loan would be forgiven but she wouldn’t be able to get her transcript for completed coursework unless she paid off her loan.
It meant starting all over again but it was her best alternative. Heald sent her a form that did not cancel her loan but only granted her a deferment. They sold the loan to a credit company and after much back and forth, she signed another similar form—that just granted her another deferment. This happened several times with different creditors for the same loan.
“They made it very difficult for students to go through the process of forgiveness. I tried to do it alone and I kept getting put off,” she said.
It wasn’t until Campos sought help with Housing and Economic Rights Advocates (HERA) in Oakland, that she was finally able to get out from under Heald’s predatory lending scam.
Gabriel Stewart tells a similar story. He attended Expressions College in San Jose and graduated in 2015 with an audio-visual degree and a debt of $50,000.
“I felt it was almost like a pipedream. When I was getting recruited into the school they said ‘we don’t have any financial aid or scholarships available but if you take out the loan, you’ll be able to get a high paying job and be able to pay it off in a reasonable amount of time and we’ll guaranteed that you find something that’s suitable for the payments’. And none of that happened,” Stewart said.
He didn’t get a high paying job and had to work multiple jobs after he graduated just to keep making his loan payments. “I’ve only been paying the minimum payment which is just the interest since I graduated. The principal has been just getting bigger and bigger,” Stewart said.
If you’re poor, finding out what you need to know to finance a college education is like having to know how to spell a word before you can look it up in the dictionary to find out how to spell it. HERA has a lot of useful information about how to finance a college education, what resources are available, and what scams to look out for.
HERA is a not-for-profit legal services organization dedicated to economic justice. For additional information or to request assistance contact them at inquiries@heraca.org or (510) 271-8443 ext. 300.
For an update on student debt forgiveness see (Cardona)
This story was brought to you by the Blue Cross Foundation of California and Ethnic Media Services.