Giving Compass' Take:

• Raquan Wedderburn & Karen Biddle Andres outline trends in American student debt, and highlight the relationship between generational wealth and widening racial divides in debt burdens.

• Why has the proportion of students who use loans to finance their education more than doubled since 1980? How can you advocate for reforms that increase the affordability of education and put college degrees within reach for more Americans?

• Learn about wealth trends in the United States.

In 2019, the total amount of student loan debt surpassed $1.5 trillion, now the largest source of non-mortgage debt. Student loan debt has a significant impact on the racial and gender wealth gap. In the wake of both COVID-19 and the civil rights protests of 2020, there is a renewed and overdue emphasis on asset-building strategies designed to close the racial and gender wealth gaps that persist in our society.

Philanthropy has rightly supported these efforts over the years and, in fact, many of the promising solutions gaining traction are the result of investments by funders. However, to make real progress, we must recognize that substantially negative net worth is the financial starting point for many women and people of color, particularly Black people. Unless we work to reduce the racial and gender debt gaps, we will not make a dent toward closing the racial and gender wealth gaps.

Furthermore, financial security (or insecurity) is often passed down much in the same way that generational wealth and opportunity are, making student loan debt ever more troubling for those interested in building generational wealth. Fortunately, with leadership from philanthropy, student loan debt is a solvable contributor to today’s debt and racial wealth gaps, with an opportunity to impact not just today’s borrowers, but also the generations who will follow them.

For people across the United States, student loan debt is a growing portion of the household balance sheet. More than 40 million Americans have outstanding student loan balances. The problems associated with student loan debt are systemic and consequential for borrowers, their families, their communities, and the nation’s economy. Historically and on average, investments in higher education have paid off — though economic outcomes have always varied by gender and race. Generations of Americans have successfully financed their education with student loan debt and reaped the benefits of higher lifetime income. Today, however, given the difficult landscape, the calculation is less clear.

Contrary to popular belief, it is often not borrowers with the highest balances who struggle the most to pay off their loan, in part because many borrowers with low balances are students who left school before completing a degree. Borrowers with less than $10,000 in outstanding debt make up over 60% of all defaults.

Within communities of color, the burden of taking on and paying back this debt is uniquely devastating. Black students take on more debt for the same degree than White borrowers. On average, Black graduates, in turn, owe $7,400 more than their White peers. Yet, as time goes on, the debt gap between these borrowers will triple to average $25,000.