Testimony of Katherine Welbeck
Before the Boston City Council Committee on Small Business and Workforce Development
A Hearing Concerning Residents and Neighborhoods in Boston Most Affected by Student Debt Post Pandemic
October 19, 2020
Good evening Chairwoman Mejia, Members of the Committee. My name is Katherine Welbeck, and I serve as Civil Rights Counsel at the Student Borrower Protection Center (SBPC). The Student Borrower Protection Center is a national nonprofit organization solely focused on alleviating the burden of student debt in this country. Prior to joining the SBPC, I worked in the External Affairs division at the Consumer Financial Protection Bureau, engaging with community leaders on critical consumer finance issues, including student debt.
I would like to start by thanking the Committee for the opportunity to speak today about the vital need for data to identify the Boston neighborhoods most affected by the student debt crisis in the wake of the COVID-19 pandemic. The economic fallout of the pandemic has only served to exacerbate the ongoing student debt crisis. While some federal student loan borrowers were offered temporary relief, it is exactly that—temporary. Meanwhile, millions of private student loan borrowers, including many right here in Boston, never received any relief. On January 1st, as the pandemic rages on, the federal government’s temporary, partial reprieve will expire. Beginning in the new year, all student loan borrowers will be without relief, and many will be forced into the unfortunate situation of having exhausted unemployment benefits and having a student loan payment come due.
More than 45 million student loan borrowers collectively owe $1.7 trillion of student loan debt, making student debt the second largest consumer finance market in the country after mortgages. And while this national crisis touches borrowers in every corner of this country, cities are on the frontlines, watching the fallout from student debt firsthand. You see the parent struggling to buy groceries because her wages are being garnished, the grandparent who cannot afford prescriptions because his Social Security benefits are being seized, or the family who cannot move into an apartment because student loan companies have wreaked havoc on their credit. All because of the unprecedented student debt burden in this country—a crisis that spans ages, races, ethnicities, and genders.
Boston is home to more than 900,000 student loan borrowers each owing, on average, more than $37,000 in student debt. This burden ripples across their financial lives, affecting their ability to buy homes, start families, and save for retirement. The burden is amplified for the most financially distressed borrowers as student loan delinquency and default carries among the most extraordinary consequences in all of consumer finance.
But perhaps even more concerning is the effect of the student debt crisis on our local economies. Research shows that student debt stymies professional mobility and small business formation. If national trends are any indication, the presence of student debt may have reduced small business formation by almost 20 percent. For borrowers who left school with more than $25,000 in student loan debt, the reduction in entrepreneurship may rise to 25 percent.
Research shows that student loan borrowers are not bearing this burden equally. The fallout of the crisis—the delinquencies and defaults, the increased cost of other forms of credit, the impact it has on housing and employment—disproportionately weighs on Black and Latinx borrowers.
To start, Black and Latinx borrowers are more likely to take on student loan debt than their white peers. As a result of the racial wealth gap, Black and Latinx borrowers are less likely to draw upon familial wealth to pay for higher education. More than 90 percent of Black and 72 percent of Latinx students take out loans to attend college in comparison to 66 percent of white students, and the average Black borrower takes on nearly 50 percent more debt for a Bachelor’s degree than his or her white peers.
However, the gaps in borrower outcomes do not stop there. Even after these students leave college, we continue to see disparities in repayment.
Twenty years after starting college, the average Black borrower still owes 95 percent of his or her original student debt balance, while the typical white borrower has paid down almost 95 percent of their original balance. Similarly, research has shown that twelve years after beginning college, the median Latinx borrower still owes 83 percent of his or her initial balance.
Black and Latinx borrowers are also more likely to experience student loan delinquency and default. Research shows that Black borrowers are five times more likely to default on a student loan than their white peers, despite having access to all the same repayment protections under law.
As a result, the student debt crisis in Boston is playing out in the most vulnerable neighborhoods, including Grove Hall, Roxbury, and Mattapan. Notably, research from the Washington Center for Equitable Growth found that the racial composition of a borrower’s neighborhood is closely correlated with whether they will struggle repaying their student loan debt.
The presence of these disparities at the neighborhood level is the result of the longstanding legacy and persistence of racial segregation and exclusionary economic policy that have created a staggering racial wealth gap. For Black and Latinx borrowers, higher debt burdens and rates of delinquency and default compound the negative economic consequences associated with student debt—further entrenching racial wealth disparities.
The Student Debt Crisis is a Civil Rights Crisis
The severity of the disparities underpinning the student debt crisis demand we analyze its impact through a racial and economic justice lens. With that in mind, as we seek to advance racial equity within our communities, we must understand the role of student debt in perpetuating existing inequities.
After being forced onto the frontlines of the student debt crisis, cities like Boston remain uniquely poised to utilize cutting-edge research as they develop innovative policy solutions to alleviate the burden of student debt for their residents. But fortunately, you do not need to start from scratch. Cities across the country have already started this crucial work—New York, San Francisco, Philadelphia, and the District of Columbia have all harnessed research from their regional Federal Reserve Bank to inform how to best target limited resources for the broadest impact.
For example, last year, the San Francisco Office of Financial Empowerment partnered with the Federal Reserve Bank of San Francisco to study student debt disparities across the Bay Area. Their resulting report found a wide variance in student loan borrowing and balances and considerably higher delinquency and default in low-income communities and communities of color. Building on this foundational research, the SBPC is now helping San Francisco to identify “hot spots” where city intervention is most needed to reach vulnerable borrowers. Through this collaboration, we helped San Francisco estimate that nearly 300,000 Bay Area borrowers—linked to the specific neighborhoods in which they likely reside—would benefit from existing government programs to provide student debt relief but had failed to benefit from these protections to date. By targeting repayment resources at points in which at-risk borrowers are already engaging city programs, San Francisco will be able to leverage existing intervention channels to alleviate student debt distress.
Similar research would be invaluable for Boston. While older, existing data suggests that Boston has not been spared the disparities that are devastating so many Black and Latinx neighborhoods across the country, more granular research is needed to inform lasting, effective policy interventions. New data could allow you to identify key mechanisms for intervention to protect student loan borrowers, as well as empower researchers to better understand the unique ways that the effects of student loan debt play out on in the city—from business formation to homeownership.
And with that, I would like to end with this:
Millions of student loan borrowers, including hundreds of thousands right here in Boston, are suffering under the weight of a broken system. And their futures are often being decided by those who have not been forced to bear this burden. Those who never had to decide between groceries or a student loan payment. Those who never had to watch the American Dream move further and further away as they struggle to stay afloat.
That is why any meaningful solution to end the student debt crisis will require action at every level of government—including from the cities bearing witness to it every day. That is why your work here today is so important.
After the last economic crisis, recovery efforts had the ill-intended effect of further entrenching economic inequality. As you begin down the long road of pandemic recovery, you have an unprecedented opportunity to design a relief effort that goes beyond returning to the status quo—you can redefine the status quo. You can center communities that are all too often forced to the margins—many of those hit hardest by the pandemic.
Boston must take the critical step of exposing the true costs of student debt across its neighborhoods, and I urge the Committee to work towards the advancement of this research.