A Dream Defaulted: The Student Loan Crisis Among Black Borrowers

The issue of student debt relief is seeing a whirl of activity and debate. On June 30, 2023, the Supreme Court struck down the Biden administration’s original student debt relief plan under the HEROES Act (Biden v. Nebraska, 2023). In response, the administration unveiled the Saving on a Valuable Education (SAVE) plan—a new, more generous income-driven repayment plan—and initiated a rules-making process that would explore administrative authority to provide relief under the Higher Education Authorization Act of 1965 (White House, 2023). News coverage on these developments often focuses on how debt relief policies would impact broad segments of the population—for instance, that “45 million people across the country owe $1.6 trillion in federal loans for college” or that the original plan would have impacted “roughly one in eight Americans” (Liptak, 2023; Turner, 2023). This argument for wide impact is often positioned against Republican contentions that student debt relief is regressive, providing aid to the already privileged college-goer (Liptak, 2023; Turner, 2023). But both of these broad brushstrokes miss the injustice at the heart of student debt: loan reliance is a matter of racial injustice. Debts’ contours and consequences are racialized, and thus the pains are not equally felt. Ignoring this when diagnosing injustice also risks ignoring the cures.

Centering race-conscious approaches to student debt relief is not a new refrain in policy or academia. Significant sociological research and policy advocacy has outlined the shift toward loan reliance under systems of racial capitalism and the ways debt interacts with injustices in labor and housing markets (Charron-Chénier et al., 2022; Davis et al., 2020; Mustaffa & Dawson, 2021; Seamster, 2019; Seamster & Charron-Chénier, 2017). Jason Houle and Fenaba Addo have contributed immensely to this understanding in their work, including through the links between debt and family wealth (Addo et al., 2016) and debt’s effects on young adulthood (Houle & Addo, 2019) and marriage (Addo et al., 2019). Their new book extends the discourse, offering a comprehensive account (from application to graduation and young adulthood) of the racial inequalities that create and are created by the student debt system. Amid the swirl of policy, A Dream Defaulted: The Student Loan Crisis Among Black Borrowers provides a critical portrait at a critical time, demonstrating for policy makers and the public why centering racial inequality is essential for the next steps in the student debt relief debate.

In this latest work, Houle and Addo take a mixed methods approach to capture the structural racialization of debt and the many ways different Black families resist these unjust systems. To examine inequalities between white and Black borrowers, they authors use the 1997 cohort of the National Longitudinal Study of Youth (NLSY97), which offers a nationally representative sample of individuals who were between the ages of twelve and seventeen when survey collection began in 1997. Participants took the survey once a year from 1997 to 2011 and continue to provide responses every two years. The NLSY97 data on debt and assets allowed the authors to analyze student debt across young adulthood. For A Dream Defaulted, Houle and Addo (2019) pull from analyses conducted in their previous work—including estimated hierarchical linear growth curve models to slopes of student debt “as a function of race” and regression decomposition—to examine how much of the racial wealth gap student debt accounts for (567). Additionally, they add texture to these findings using interviews with forty-nine Black students across the country in the same age range as the NLSY97 cohort. Direct quotes and testimonies from these young adult Black borrowers illuminate new elements of how debt can be tangibly experienced, as well as its impacts on future planning. In each chapter Houle and Addo weave in analysis of existing legislation alongside relevant studies, elaborating on their findings through the research and voices of other sociologists and advocates in the field. Together, these sources combine to create a compelling, fuller portrait of the racialized injustices of the modern student loan system.

Houle and Addo split their findings into two timepoints of inequality: what they term “debt accumulation” and “debt repayment.” In the case of the former, many Black borrowers and their families are often pressured to take out greater and riskier loans than white families are. The authors’ studies of the NLSY97 found that white families are more likely to have greater wealth, more assets, and often home equity to invest in higher education. In 2019, for example, “the median net wealth … of white households was $188,200, compared with $22,400 for Black households” (34). They outline how this inequality translates into financial aid through (1) the Free Application for Federal Student Aid’s (FAFSA) calculations based on wealth and the assumption that families can help pay, leading to consistent underfunding of many Black families compared to their white counterparts; (2) FAFSA’s extensive administrative complexities and delays; and (3) the compounding advantage of cultural capital from white families who already are familiar with navigating FAFSA or other systems of aid. Additionally, many Black borrowers reported that during college even “best laid plans” were often disrupted by the fundamental

precarity of the policy structure, with changes to aid or family needs pressuring many to borrow more (and especially borrow from the more predatory private market) for timely relief (49). As Houle and Addo write, “The fragility of the Black middle class is characterized by economic precarity and the lack of a safety net (wealth) to buffer unexpected shocks, leading young people to take on more debt when they get to college” (50). Common public discourse about the number of borrowers with any debt misses this disparity in the uneven size and burden of student loans. This inequality has real-time consequences for postsecondary outcomes, as well as for the uneven emotional and psychological toll debt can take. The authors note that “Black students drop out of college at a much higher rate than white students, and many cite debt and financial struggles as a key reason for doing so” (45).

Many Black borrowers who do graduate from college face yet another set of hurdles in debt repayment. If students hold less than $30,000 in debt, they are eligible for the more reasonable standard repayment plan, with minimum payments below $50 per month. But the median Black borrower’s debt ($32,523 in 2015-2016) exceeds this threshold, excluding many from this option (69). Students may be eligible for income-driven repayment plans (IDR), which require students to pay a percentage of their discretionary income (typically 10–15 percent), with loans discharged after a set number of years (79). But accessing the IDR is challenging; to be eligible, every year students have a short (ten-day) period in which to file paperwork recertifying their income (79). Moreover, the formula for calculating discretionary income does not account for cost of living, taxes, and other expenses, and many borrowers the authors interviewed said that their determined payment was thus often far higher than what they could afford.

The consequences for deferring or getting behind in payments are severe. Study participants frequently reported experiencing negative amortization— that is, interest rates growing a person’s final loan balance faster than they can pay it off. Indeed, the authors point to recent research indicating that “nearly half of Black college graduates owe more than they did when they graduated, compared to only 17 percent of whites” (27). Black borrowers are also more likely to default. In a cohort of students enrolling in the 2003-2004 academic year, three times as many Black students as white students reported defaulting within twelve years (37.5 percent and 12.4 percent, respectively) (25). As Houle and Addo’s quantitative work chillingly concludes, despite the wage premium of college, “Black young adults with a college education are no more likely to buy entry into the middle class than Black young adults with less than a college degree” and Black young adults in general are roughly half as likely as their white peers to do so (120). Many participants in their study for A Dream Defaulted reflected on the stress and pain of feeling like they cannot get out from under their debt, with their finances disrupting plans for retirement savings, home investment, or even family planning. Houle and Addo also use the NLSY97 to show how the resulting debt widens the racial wealth gap across the US, with nearly a quarter of that gap attributed to student debt accrued by age thirty (117).

Canceling debt and reducing loan reliance are matters of advancing racial justice, and Houle and Addo offer a variety of solutions to do just that. The authors contend that, in general, any just policy response must be “bold, accessible, and inclusive”—that is, it needs to remove all or most debt to actually aid Black borrowers, remove administrative burdens that benefit those with time and experience, and be available to as many borrowers as possible (127). From there, they sketch “downstream” policies to provide better relief to Black borrowers with existing debt, including the cancellation of all debt (or at least $50,000, similar to the 2021 resolution from Representative Pressley and Senators Warren and Schumer) and revisions to the income-driven repayment plan (S.Res.46 - 117th Congress, 2021-2022). The SAVE plan appears to overlap with some but not all of their recommendations. For instance, it expands what counts as nondiscretionary spending but still is not the default plan, so many policy makers should refer to this section of the book as this plan is updated and administered. The authors also outline “midstream” policies within the sector to limit loan reliance, such as refinancing higher education and making stronger investment in HBCUs. Finally, and importantly, they highlight “upstream” solutions to combat Black middle-class fragility, including through baby bonds and particularly reparations. All three sets of solutions, they underscore, are critical to combating the debt crisis and inequality in the long-term.

In addition to the impressive synthesis of extensive data from their own and others’ work, a fundamental strength of Houle and Addo’s book is their asset-based approach to how Black borrowers individually navigate and resist a network of racially unjust policies. It highlights, for instance, how, even against the barriers of FAFSA, Black families are more likely than white families to contribute to students’ college funds in general, with qualitative data revealing how study participants’ families leveraged social capital to pool money and college prep materials. Also, it finds that participants were often extremely savvy and adaptive, seeking college majors that would most likely yield more lucrative careers or obtaining jobs to care for family while also keeping up with classes. The authors marshal this evidence to combat racist, individualistic explanations for student debt, but they also manage to craft a text that is academically precise on issues of both injustice and resistance. Achieving either aim is a triumph. Doing both so successfully—that is, advancing practical pol icy-level jus tice through such nuanced, interdisciplinary investigation—is what makes this book an exemplar for academics and practitioners alike.

This small book packs a powerful punch for national policy makers, too, and is essential reading as the debate around loan cancellation continues. Its emphasis on the federal level makes sense for discussion of the debt crisis, since it trains its focus on federal loans and the policy debate around loan cancellation. In the future, it would be exciting to also see the authors look at midstream solutions and guidance for bold, accessible, and inclusive policies that state legislatures could take up in the interim, especially given the growing literature on state-level tuition-free programs. Such a project falls outside the scope of this particular work, of course—the authors already had tremendous ground to cover at the national level, and they excelled at doing so—but it would be an interesting addition to their ongoing research.

At this time of active national debate, A Dream Defaulted is essential reading for academics, practitioners, policy makers, and any members of the public looking to understand and act on the growing student loan crisis. Houle and Addo provide a remarkable portrait of the crisis and offer a playbook for next steps to advance racial equity in this debate. It is now up to the reader to pick up where they leave off.

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