More Bold Actions Needed to Abate the Nation’s $1.5 Trillion Debt Crisis

The annual season of college commencements have a unique way of bringing together multiple generations of families in celebration. For the 135th graduating class of Atlanta’s Morehouse College, commencement marked another event that was as unexpected as it was generous.

Robert F. Smith, the event’s speaker who is also Chairman and CEO of Vista Equity Partners, announced he would pay the entire class’ student loan debts. This unprecedented gift, expected to run as high as $40 million, now enables the newest Morehouse men to begin careers free from the burdens of debt that accompany the start of many careers. Smith’s generosity also directly affects the lives of multiple family generations who contributed to the sharing costs of these college educations.

In a related interview with the Atlanta Journal-Constitution, Yasmin Farahi, policy counsel for the Center for Responsible Lending (CRL) reacted to the impact of Smith’s gift “on the lives of these graduates and their families will be incredible,” she said. “But it’s also worth recognizing the impact it has on the lives of their family members who have co-signed on these loans or would otherwise be supporting these graduates as they worked to get out from under their student debt.

"Student loan debt is an intergenerational problem.”

New research from the AARP Public Policy Institute provides insights on how increasingly older borrowers are taking on debt to help younger family members.

And when it comes to Black families, grandparents, aunts, and uncles are all helping their kin at higher rates than other ethnicities or races. This help can include not only direct borrowing, but also cosigning their student family member’s loans. Should a student borrower default on cosigned loan(s) with family members, the cosigner’s financial stability is jeopardized.

“People ages 50 and older owe 20 percent, or $289.5 billion, of that total, up from $47.3 billion in 2004,” states the report. “The overall increase reflects a sharp rise in both the number of families borrowing and the amounts they borrow…. For many families, the amount they owe increases over time because they are not paying enough to cover interest and pay down principal.” Defaults result in lost tax refunds, garnished wages, and decreased benefits from both Social Security retirement and disability benefits – very real risks for the estimated 8.4 million student loan borrowers ages 50 and over.

The ways in which family members’ share the cost of college enrollment is also changing.

Although the AARP report found that 30% of older Black consumers cosigned private student loans for family members, far more – 45% borrowed on their credit cards. This level of credit card debt exceeds that incurred by Whites (31%), or Latinx (39%).

Further, a disproportionate jump in borrowing from retirement savings accounts are also negatively impacting older Black consumers. While only 6% of comparable Whites used these funds, Black utilization was triple that of Whites at 18%. Older Latinx tapping into retirement savings were more than double that of Whites at 13%.

When the financial impacts of the nation’s racial wealth gap are added to these disparities, it’s little wonder that Black America suffers from acute financial stress. As this column recently reported, Black wealth averages only a dime for every dollar of wealth held by Whites.

Clearly, public policy reforms can and should address this national financial crisis. AARP’s proposed remedies include:

• Increased public investment in higher education;
• Encouraging the use of uniform financial aid award letters so they are more easily compared;
• Ending offsets of Social Security benefits and other federal payments affecting older consumers; and
• Allowing federal Parent PLUS borrowers to enroll directly in income-driven repayment plans.

While these reforms should be heartily supported by the federal government that sets budget priorities, the likelihood of interminable lawmaker debates or neglect still looms large.

This past February, a CRL letter to several U.S. Senators alerted them to the disproportionate impacts of the student loan crisis on consumers of color, as well as a list of remedies to abate the crisis.

“Students of color still face barriers in accessing higher education, still hold disproportionate financial burdens, and still struggle to overcome bad information from servicers,” wrote CRL. “Student loan debt is a real crisis for many people of color, and it exacerbates the racial wealth gap…The time has come for large, systemic change and not tinkering around the edges of the Higher Education Act.”

“Unless bold, new actions are taken,” warned CRL in its letter, “a generation will be trapped in debt undertaken to advance their lives.

Among CRL’s recommendations were to:

• Increase Pell grants and move that funding into the Education Department’s mandatory budget;
• Increase and expand aid for Minority Serving Institutions via Title III and Title V;
• Encourage borrowers to make student debt payments based on 8% of discretionary income, and then discharge any remaining balance after 10-15 years;
• Guarantee that all loan forgiveness be tax-free; and
• Protect borrowers from aggressive collections and benefit garnishment.

While these and other federal aid reforms are debated on Capitol Hill, there remains yet another sphere of influence that could extend the kind of goodwill borne from Mr. Smith’s adoption of Morehouse’s Class of 2019: increased Black philanthropy.

If other highly successful Black businessmen and women, professional athletes, recording artists and others followed Smith’s example, HBCU’s like North Carolina’s Bennett College might not have needed a national emergency financial rescue. With a new infusion of financial resources, more students on college campuses could breathe a financial sigh of relief, knowing that people who look like them provided help beyond their own family’s resources.

Without a doubt, the nation needs more need-based scholarships and grants – especially at HBCUs. If that were to happen, a stronger sense of community could emerge with a renewed sense of pride.

As Mr. Smith said in his May 19th commencement address, “We have nourished the soil with our blood. We ‘ve sown the land with our sweat. We’ve protected this country with our bodies, contributed to the physical, cultural and intellectual fabric of this country with our minds and our talents.”

Here’s hoping that more who have been financially blessed, will choose to pass a portion of assistance to those wanting to earn their way into the nation’s middle class.

Charlene Crowell is the Center for Responsible Lending’s Deputy Communications Director. She can be reached at [email protected].