By Kat Welbeck and Ben Kaufman | February 8, 2021
With over $1.7 trillion dollars in outstanding balances, student loan debt is the second largest class of consumer credit in the country, and it is rapidly growing. This crisis is fueled by a broken debt-financed higher education system that punishes borrowers for pursuing the American dream, leaving people who were told that higher education is a gateway to the middle class with unprecedented debt burdens. The reality for Black and Latino borrowers who bear the brunt of this debt load and its consequences is even more stark, making student loan debt a key barrier to racial equity.
Acting Director Dave Uejio, the Consumer Financial Protection Bureau’s (CFPB) interim leader, recently directed the Bureau’s Division of Research, Markets, and Regulations to “prepare an analysis of the most pressing consumer finance barriers to racial equity to inform [the Bureau’s] research and rulemaking priorities.” At the start of his tenure, Acting Director Uejio said the agency would prioritize its role in addressing racial inequality as the nation’s top consumer watchdog.
Today we wrote the Bureau to highlight that any comprehensive analysis and regulatory prioritization grounded in removing barriers to societal equity must acknowledge the racially disparate effects of the student debt crisis and the decades-long failure to effectively regulate the student loan industry.
Disparities in student debt distress have been made worse by the absence of a regulatory framework capable of protecting student loan borrowers—and especially borrowers of color—at every step in the student loan lifecycle. For years, regulators, law enforcement officials, lawmakers, scholars, and consumer advocates have all documented how student loan borrowers have fewer rights and protections than borrowers in any other major consumer financial market. The Bureau itself has noted that “for student loan borrowers, there is no existing, comprehensive federal statutory or regulatory framework providing consistent standards. . . .”
Predatory actors across this market routinely build entire business models predicated on targeting Black and Latino communities to bolster their bottom line. For-profit colleges engage in reverse redlining to exploit Black and Latino students, private lenders peddle high-cost, high-risk products to Black and Latino consumers, student loan servicing disparities drive Black and Latino borrowers to default at alarming rates, and the student loan debt collection machine disproportionately singles out communities of color. In this regulatory vacuum, predatory actors have gone unpunished and industry continues to draw up new and innovative ways to take advantage of borrowers. As a result, the student debt crisis—particularly for borrowers of color—has grown more and more severe.
The Bureau must utilize the clear authorities already granted to it under the law to initiate a broad-based rulemaking aimed at protecting borrowers throughout every phase of the student loan lifecycle, weeding out predatory practices in all corners of the market, and combating systemic barriers to racial equity.
The Bureau must utilize the clear authorities already granted to it under the law to initiate a broad-based rulemaking aimed at protecting borrowers throughout every phase of the student loan lifecycle, weeding out predatory practices in all corners of the market, and combating systemic barriers to racial equity.
As the past several decades of policy failures have made clear, as the COVID pandemic has reminded us, and as the experiences of countless borrowers of color who struggle under the weight of student loan debt make impossible to ignore, protecting student loan borrowers must be central to any effort to address systemic barriers to racial equity. We cannot continue to ignore the trillion-dollar black hole in our financial markets and its role in perpetuating racial inequality. Now is the time to act.
Read our letter here: The CFPB Must Prioritize the Student Debt Crisis as a Civil Rights Crisis
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Kat Welbeck is a Civil Rights Counsel at the Student Borrower Protection Center. She joined the SBPC from the Consumer Financial Protection Bureau where she worked in the Office of Public Engagement & Community Liaison.
Ben Kaufman is a Research & Policy Analyst at the Student Borrower Protection Center. He joined SBPC from the Consumer Financial Protection Bureau where he worked as a Director’s Financial Analyst on issues related to student lending.