Government disinvestment in public higher education and the rise in college tuition over the last forty years are fundamental and interconnected factors contributing to the student loan debt crisis. Disinvestment in public higher education, though variable across states, has followed a similar pattern wherein federal and state governments have shifted the cost of public higher education onto families.
Capturing this shift in financial burden, a recent report on funding for public higher education found that, while state and federal appropriations comprised 68.5 percent of total university revenue in 2003, state and federal appropriations only comprised 56.1 percent of total university revenue in 2020—a decline of 12.4 percent. To offset these budget cuts, institutions have raised the cost of tuition, with average tuition increasing 164 percent at public four-year universities since the 1980s. These budget cuts coincide with increased college-going rates for Black and Latinx students since the 1980s.
Total student loan debt in the United States now stands at $1.757 trillion, the vast majority of which is federal student loan debt (92.4 percent), distributed among 43.5 million borrowers. This astounding $1.757 trillion in collective student loan debt is seven times the $243 billion held in 2003. Average student loan debt held at graduation has also starkly increased since 2003. Among 2021 college graduates, the average amount of student loan held was $31,100, a 93.5 percent increase from the $16,070 average student loan debt held by 2003 college graduates. These baseline statistics draw attention to the rapidity with which student loan debt has cumulatively grown over time, and the increasing financial burden it imposes on the average borrower.
Iterations of Inequality
Governmental shifts in funding for public higher education, though negatively impacting all students at public universities, have had a disproportionate negative impact on Black and Latinx students. Black and Latinx families, because of historic and contemporary racism and discrimination, have less wealth than White families. Per the 2019 Survey of Consumer Finances, there are significant gaps in median family wealth, with median White family wealth being $184,000 relative to median family wealth for Latinx and Black families being $38,000 and $23,000, respectively. The racial wealth gap is also widest for families with children under the age of eighteen, with Latinx and Black families having eight cents and one cent per every one dollar of wealth held by White families, respectively. Black and Latinx families also have less liquid wealth, which creates additional barriers when paying for college, and contextualizes significant racial disparities in student loan debt attainment within wealth brackets. Lastly, there are significant racial inequalities in annual income by race, with White families having a median household income of $76,057 in 2019, compared to $56,113 and $46,073 for Latinx and Black families, respectively.
Given racial inequalities in wealth and income, Black and Latinx families encounter steeper financial burdens when funding college education. These steeper financial burdens manifest in similar yet distinct ways for Black and Latinx students. Black and Latinx students are more likely to attend community colleges, where there are significant funding disparities in comparison to selective public universities—where most White public higher education students attend. In 2015, selective public universities spent nearly three times more per student on instructional and academic costs than community colleges. These excessive inequalities have negative impacts on the students who attend underfunded community colleges with fewer resources to support their needs. For example, 11 percent of Latinx students and 9 percent of Black students who start their education at community college complete a bachelor’s degree within six years, compared to 55 percent and 46 percent of Latinx and Black students who start their education at a selective public university.
These significant funding disparities are an example of racial and class inequalities reinforced writ large across the broader landscape of public higher education. In addition to these barriers to access and the underrepresentation of Black and Latinx students at selective public institutions across the country, research also documents significant funding disparities among selective public institutions—particularly between nonflagship institutions that enroll majority Black and Latinx students and are within public university systems with larger flagship institutions that enroll majority White students.
It is, however, vital to contextualize that significant funding inequalities between community colleges and selective public universities are driven by increases in tuition and fees at selective public universities made in response to state disinvestment. This phenomenon has occurred because selective public universities can raise tuition and fees to increase revenue from tuition and fees to offset the void created by state disinvestment, whereas community colleges are capped at the amount they can raise tuition and fees. As result, students who attend selective public universities are now paying significantly more than they would have prior to governmental policy decisions to disinvest from public higher education, which adds additional barriers to both access and degree completion, all the while funding gaps between community colleges and selective public universities grow larger.
People who are racialized as Black and people who are racialized as Latinx are both less likely to attend college and less likely to earn a college degree compared to people who are racialized as White. In 2019, immediate college enrollment among graduating high school seniors was 69 percent for White students, 64 percent for Latinx students, and 57 percent for Black students. Recent census bureau data documents persistent racial disparities in bachelor’s degree attainment, with 41.9 percent of people who are racialized as White above age twenty-five having obtained a degree, compared to 28.1 percent of people who are racialized as Black and 20.6 percent of people who are racialized as Latinx.
Assessing the college-going patterns, educational attainment rates of people who are racialized as Black, people who racialized as Latinx, and people who are racialized as White reveal clear patterns of disadvantage that contribute to prolonged racial inequalities. Comparing their postsecondary experiences, however, reveals some key differences in how disinvestment in public higher education has negatively impacted both people who are racialized Black and people who are racialized as Latinx in distinct ways relative to people who are racialized as White.
People who are racialized as Black have higher educational attainment rates relative to people who are racialized as Latinx, but tend to graduate with higher amounts of student loan debt. Meanwhile, people who are racialized as Latinx have lower educational attainment rates relative to people who are racialized as Black, yet tend to graduate with similar amounts of student loan debt as people who are racialized as White. People who are racialized as Latinx, however, despite having similar student loan debt profiles as people who are racialized as White, have much less wealth compared to people who are racialized as White and earn less annually. While there is still much work to be done to create equitable access to education and to close educational attainment gaps, it is also important to assess the postsecondary outcomes among those Black, Latinx, and White college graduates who used student loans to fund their college education and those who did not.
The Impact of Student Loan Debt across the Life-Course
Holding student loan debt is negatively associated with delaying key life and financial milestones such as marriage and homeownership. It is also linked to health and socioeconomic hardships, such as deferring health needs and having difficulty paying bills. Holding student loan debt is also negatively associated with having reduced amounts of home equity relative to nonborrowers, and reduced amounts of wealth accumulation overall relative to nonborrowers These negative associations between student loan debt and other social and financial outcomes help capture the social and economic impact that holding student loan debt has on borrowers after graduation.
Among the 43.5 million federal student loan borrowers, however, the distribution of student loan debt is unequal, with Black borrowers holding more student loan debt than Latinx and White borrowers. Among 2015–2016 bachelor’s degree recipients who used student loans, Black students borrowed significantly more ($39,500) than White ($29,900) and Latinx ($28,200) students. Given these racial inequalities in student loan debt, scholars have described the unequal distribution of student loan debt as a form of predatory inclusion, whereby the full benefits of a college degree have been diminished. There are also significant gender inequalities in student loan debt attainment, with women holding more student loan debt than male students. These differences in student loan debt attainment are significant because they position already disadvantaged groups in more difficult financial situations to build wealth.
There are also significant racial inequalities in student loan debt default rates and patterns of repayments by race. Black and Latinx borrowers are more likely to default and are less likely to be making progress repaying their student loan debt relative to White borrowers. A recent study, using the Beginning Postsecondary Students Longitudinal Study, found that 49 percent of Black borrowers and 33 percent of Latinx borrowers who started college in 1995 defaulted on their student loans relative to 20 percent of White borrowers. The same study also found that after twenty years the average Black borrower still owed 95 percent of their student loan debt, while the average White borrower owed 6 percent. Likewise, a more recent study by the JP Morgan Chase Institute linking administrative banking data and credit bureau records found that 9.9 percent of Black and 4.5 percent of Latinx borrowers were not making payments on their loans, compared to 2.6 percent of White borrowers. The same study also found that 13.1 percent of Black borrowers and 8.4 percent of Latinx borrowers were not on track to ever repay their loans compared to 6.8 percent of White borrowers. In addition to these broader trends, research shows that the Black-White gap in student loan debt rapidly expands in the years after graduation and in early adulthood.
Racial inequalities in student loan debt attainment, default rates, and repayment rates contribute to the racial wealth inequalities we see among college graduates by race. Thus, despite increases in educational attainment among people who are racialized as Black and people who are racialized as Latinx, the imposition of student loan debt as well as other wealth transfer dynamics—such as White college-graduates being more likely to receive family financial support and Black and Latinx college graduates being more likely to provide family support—have made it so their educational attainment does not generate the same wealth-building trajectories as it does for people who are racialized as White. Per the 2016 Survey of Consumer Finances, White college-educated households had much higher median net worth relative to Black and Latinx college-educated households. White college-educated households had a median net worth ($397,100) six times more than Black college-educated households ($68,200) and just above five times more than Latinx college-educated households ($77,900). Moreover, non-college-educated White households also had a higher median net worth ($98,100) than both Black and Latinx college-educated households.
Failed Public Policies and the Need to Reinvest in Public Higher Education
The rise of the student loan debt crisis as we know it today is not happenstance, but rather the result of failed public policy decisions. The rise of student loan debt began precipitously during the Reagan administration in the 1980s with the passage of two policies passed in 1981: the Gramm-Latta Budget and the Kemp-Roth Tax Cut. These policies were the driving forces behind the slashing of grant funding for public higher education and the expansion of the guaranteed student loan industry. As a result, during Reagan’s first administration spending on higher education and federal student aid was reduced by 25 percent, which caused Pell Grant funding to flatline (increasing from $2.36 billion in 1980 to $2.80 billion in 1984), thereby failing to keep up with the rising cost of college. Meanwhile, the total amount of guaranteed student loans in the US grew from $2.9 billion in 1980 to $7.93 billion in 1984.
These Reagan-era policy changes generated the political and social momentum for the continued, bipartisan disinvestment in public higher education that has led to the rapid growth of student loan debt since the 1980s. These policies have led us to a moment where generations of Americans are indebted, and racial wealth inequality is growing—due in part to student loan debt inequalities and the disinvestment in public higher. However, in recent years the number of Americans who think the federal government should be the primary funder of public higher education has doubled, and there are increased calls for student loan debt cancellation. Given these structural flaws in the US public higher education funding structure and the changes in public opinion, the onus is now on US policymakers to take the required steps to rectify a student loan debt crisis created through failed public policy.
Any opinions expressed in the articles in this publication are those of the author and not the American Sociological Association.
