The Student Debt Crisis, the Ravages of Systemic Inequality

By Norman Franklin

Norman Franklin

The student loan program was established in 1958 in response to the Soviet Union’s launch of Sputnik. The Russians were ahead of us in the space race.

This was unacceptable. During the Cold War era, America and Rus sia were positioning themselves to be the dominant world power. The race to space was a harbinger. The National Defense Education Act, NDEA, offered low-interest student loans to strengthen education in science, math, and foreign languages.

The program expanded in 1965 under President Johnson’s Higher Education Act, HEA. Under HEA, the Guaranteed Student Loan Pro gram, made college accessible to low-and middle-income Americans.

The 1958 program focused on national defense and systemic selective participation. The 1965 HEA opened college and university campuses to a broader range of Americans.

The pre-civil rights program was gender inclusive and paved the way for women to surpass men in earning bachelor’s degrees. Although data is unavailable, loan defaults are presumed to have been low.

The context of the era suggests that minority participation – Blacks, Hispanics, and Native Americans, was constrained by systemic barriers. The default rates significantly increased in the 1980s.

Under HEA, private banks made the loans, and the government guaranteed repayment if the borrowers defaulted. With amendments to the program, from 1992 through 2010, government became the direct lender.

A global financial crisis forced the federal government to buy billions of guaranteed loans to keep the Federal Family Education Loan Pro gram, FFELP, system running. The program officially ended in 2010 with the Health Care and Education Reconciliation Act. All new student loans were direct from the government.

The three-year COVID shutdown, 2019 – 2021, brought new realities, adjustments, and reassessed priorities. Low wage, low wealth barrowers were forced to make choices between debt and dinner.

We now have a student loan debt crisis; millions are in default. The Biden administration paused loan payments, even considered loan forgiveness. These measures were met with conservative Republicans resistance.

Proponents for an aggressive approach to debt collection will have greater leverage after the 2024 election.

The Department of Education is set to begin wages garnishments for defaulted loans. It will have a dis proportionate burden on minority and low-wealth debtors.

I am hesitant to bring it up, but it has to be said, systemic inequality is intricately woven into our government, private and social institutions.

In America today, the true bête noire is not inequality itself, but the uncomfortable reckoning with its enduring effects – a reckoning many would rather deny than address.

The federal student loan debt totals 1.6 trillion dollars, with nearly 43 million borrowers. With over 5 million borrowers in default, and another 10 million in late-stage delinquency, the default rate could reach 25% of the loan portfolio.

The Department of Education will resume collections in May.

Here is the demographic breakdown of bor rowers in default. Hispanic/Latino borrowers: 10 %; White/Caucasian borrowers: 6%; Black/ African American borrowers: nearly 22%.

The higher default rates among Black and His panic borrowers reflex a complex intersection of systemic inequalities, economic realities, and educational disparities.

African American and Hispanic families have lower median wealth and a limited financial safe ty net to support higher education. The median family wealth for these demographics are white families -$188,000; Black families - $24,000; His panic families - $36,000.

The lower the family wealth, the greater dependence on student loans. There are few er resources for repayment, particularly during economic downturns and the unprecedented COVID shutdown.

Nonetheless, collections and wage garnishments will begin on May 5th.