Over the past several decades, student debt in Massachusetts is rising. While in 2004, 58 percent of graduating student at Massachusetts public universities were in debt, in 2016 it rose to 73 percent. State funding to public universities per student has fallen by nearly a third, engendering tuition increases.
Nationally, there exists a stark divide notably between white and African American students in terms of student debt. While the average student debt for a white student who graduated from a public university in 2012 is $25,807, for a black student it increases to $29,344. These differences reflect greater socio-economic divides.
To take the example of Boston, white households have an average wealth of $247,500. For black households it is a mere $8. Since the average black student typically comes from a more financially stressed household, it should be no surprise to see that black students need to borrow more in order to obtain a degree.
Just to get an idea of the lifetime effects of student debt, especially for how it disproportionally affects African Americans, I use Hiltonsmith’s model of student debt that projects that $1 dollar of student debt leads to $4 dollars of lifetime wealth loss. Instead of using the average student debt of a graduating student at UMass Amherst ($31,860), I utilize the before stated 2012 national numbers because to my knowledge there is no data that breaks down student debt by race at UMass Amherst.
I examine the financial impact that, by holding the average student debt constant and by assuming no transfers and no dropouts, the graduating level of student debt will have on the class of 2022.
Thus, there are two clear limitations to this analysis:
1) By using 2012 national data, the final outputs understate the financial impact due to average debt nationally likely being higher and the and average debt at UMass Amherst being higher.
2) Assuming no transfers and dropouts is unrealistic. It is especially important to note that African Americans are more likely to drop out than whites, largely citing financial reasons.
Putting all considerations in effect, by multiplying the population of white and black students in the class of 2022 to their corresponding average levels of debt at graduation, the total levels of debt for each group are:
White Students: $76,001,615
Black Students: $6,807,808
To find the total wealth loss, simply multiply the level of debt by four:
White Students: $304,006,460
Black Students: $27,231,232
Converting this to per person wealth loss:
White Students: $103,228
Black Students $117,376
What if African American students graduated with the same amount of average debt as their white counterparts?
Total Debt: $5,987,224
Total Wealth Loss: $23,948,896
Per Person Wealth Loss: $103,228
Racism — whether explicit, institutional, and so on — comes at a huge cost (maybe the greatest understatement of all time). Significant gaps exist between white and black students that leave black students financially worse off. This must be addressed and be included in discussions relating to the long-term impact of student debt. Another important take away from this exercise is the absurdity of the debt for diploma transaction. Currently in Massachusetts, borrowers are collectively facing over a hundred billion dollars of life time wealth loss.
Now is the time for Massachusetts to end this transaction and eliminate the racial gaps that it perpetuates.
