Student Debt: Roadblock To Racial Equality

Published: Feb 10, 2022  |  

Founder & CEO of Degree Insurance

Passed just one month prior to the Voting Rights Act, the Higher Education Act of 1965 created a landmark definition of HBCUs as “any historically black college or university that was established prior to 1964, whose principal mission was, and is, the education of black Americans.” The act granted special funding, recognizing the heavy lifting these institutions had done in the long and often violent century between the Emancipation Proclamation and the Civil Rights Era. The spirit of the law was one in the same with that civil rights struggle: uplift. But, paradoxically, this lauded act also established a Federal loan program that has threatened an entire generation with crippling debt—debt that has the power both to condemn a person to a generation of poverty and to blow the achievement gap wide open for our country at large. 

Student debt is a roadblock to social justice: 45 million Americans carry student debt, but Black college graduates owe an average of $25,000 more in debt than their white counterparts. That debt stands between them and the promise of financial security—the very reason why many pursue an education in the first place. That debt all but guarantees the vicious cycle of poverty and racial inequality in this country.  Yet, simply forgiving it won’t make the underlying problem go away. While cancelling student debt is a nice idea, waving a wand to make it disappear would fail to address any of the causes underlying the debt. Because borrowing levels are not tied to likely future earnings, colleges have little incentive to keep costs down as the burden is still carried exclusively by individuals and colleges still bear too little accountability. Fifty-six years after the Higher Education Act, it is time to ask colleges to insure their student outcomes. 

By guaranteeing a graduate’s earnings in the five years following college, we can encourage those students who do choose to attend to persist through to graduation with confidence. This reduces the default rates on the debt taken out, as a majority of those in default are students who tried college but never graduated. Insurance is a risk-transfer tool that will help spread the risk of a degree failing any individual graduate and raises the floor of outcomes for all students. A rising tide lifts all boats. Moreover, one in every ten years is a down economic cycle, and graduating into one depresses an individual’s lifetime earnings. As a Pell Grant recipient who graduated shortly after 9/11, I lived this story. By the time I paid off my loans, America’s college students had never lived in a world in which the Twin Towers still stood. 

By the time I had paid off that debt, I had a successful career in aviation and joined the board of a new charter school in Bridgeport, CT. Great Oaks Bridgeport served a largely minority demographic in an economically depressed city. As a board member, I was tasked with research to assure the best possible educational outcomes for our student body. However, while we initially focused on college admission as an indicator of success, we soon realized this was the wrong goal post: only 45.9% of Black students finish college in six years. This high dropout rate means that those students who do not complete school in six years, effectively drive themselves—and their families—further into poverty. It was then that I realized the marker of educational success had to be finishing college, not simply getting in. If a student’s income after college could be insured, then they would have a better shot at finishing and reaping the financial rewards of an undergraduate degree. 

This insight inspired me to found Degree Insurance; as CEO, I have crunched the numbers to know that for $100M, we could guarantee the outcomes of every new student at an HBCU in America this year. Under that model, states, NGOs, and even the federal government could purchase insurance today that would let colleges begin marketing this guarantee immediately and shore up their enrollment numbers.  There are many structures that could work to provide this relief—and provide a powerful tool in the quest for racial and economic equality. 

Higher education should be a key to inclusion; there is an undeniable link between academic access and economic success. The average undergraduate takes out an estimated $7,000 per year in debt, across five years of college. It will take them 21 years to pay back those loans with an average monthly payment just under $200. That same college graduate earns $1 million dollars more, on average, than they would have without a degree. However, while nearly 20 million Americans are currently enrolled in college, only six in ten of them will graduate from their college within six years. This disparity becomes more stark when we look at it by race: while 64% of white college students will finish in those six years, according to government data, only 40% of their Black classmates will. Those who don’t graduate are made poorer for having attended. We are so busy promoting college access and convincing every American high school student that they need to attend college that we don’t even realize we missed the mark. It is not attending college that leads to better earnings—it is finishing.

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