Abstract

Excerpted From: Stephanie Kaczowski, Student Debt Is a Racial Justice Issue: Could Antitrust Law Provide a Legal Avenue for Relief?, 31 Georgetown Journal on Poverty Law and Policy 295 (Winter, 2024) (333 Footnotes) (Full Document)

The student loan crisis is a racial justice issue. Race is one of the strongest predictors of federal student loan default: Black borrowers have worse outcomes compared to other racial demographics. Compared with other racial demographics, Black students are more likely to default and less likely to resume repayment after defaulting. Similarly, Black undergraduate students are more likely to have student loan debt than White, Hispanic, and Asian undergraduate students. Black undergraduate students are more likely to carry greater amounts of student loan debt than students of other races. Black undergraduate students are also twice as likely to receive grants designated for exceptionally needy students with no prior bachelor's degree, such as the Federal Pell Grant (Pell Grant). Overall, the student loan crisis disproportionately affects Black undergraduate students compared to students of other races.

Unfortunately, the United States economy depends in part upon student loan debt. Student loan debt is the second largest debt in the United States behind mortgages. Federal student loan debt in the United States has increased by 144% since the Great Recession, growing from $642 billion in 2007 to $1.566 trillion in 2020. Prior to the COVID-19 pandemic, approximately “11% of the total outstanding federal student loan portfolio was in default and another 6% was more than 30 days delinquent.” At the beginning of the pandemic, student loan defaults were on the rise and it was estimated that 40% of the entering class of 2003's federal student loan borrowers would default by 2023. This debt supports millions of jobs and until the United States restructures educational financing to create alternative employment, resistance will continue and the debt will grow.

The United States cannot afford to continue passing student debt onto the next generation. No one plan will address the student loan crisis perfectly, which is why the United States needs to tackle the student loan crisis both inside and out of Congress. The Biden-Harris Student Debt Relief Plan (the Plan) presented a potential first step to addressing this crisis, but more needs to be done. In the wake of the pandemic, the Plan intended to alleviate the student loan crisis by cancelling up to $20,000 of federal student loan debts for middle and lower-class borrowers. Under the Plan, the Secretary of Education would have cancelled student debt using the enhanced executive emergency powers derived from the COVID-19 national emergency declaration and the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act). If it had been enacted, the Plan would have cost taxpayers $30 billion a year for the next ten years. The Plan was a one-time solution with no long-term strategy for addressing the United States' unsustainable student debt. However, the Supreme Court vitiated the plan before it could be implemented. On June 30, 2023, in Biden v. Nebraska, the Supreme Court held that the Secretary of Education did not have the authority to cancel $430 billion in student debt through the HEROES Act.

This Note endeavors to show how and why Black students are disproportionately impacted by the student loan crisis and to discuss possible remedies to the burgeoning student loan crisis. To illustrate this point, this Note is structured as follows: Part II discusses how the student loan crisis harms individual borrowers and the United States as a whole, and how the student loan crisis disproportionately harms Black student loan borrowers. Part III gives an overview of the United States' federal financial system by discussing the origins of the United States' higher education system and the current higher education financing model. Part IV diagnoses the causes behind the student loan crisis. Part V specifically discusses how higher education costs have outpaced grant aid; how a lack of underwriting creates a risk that students will borrow more than they can realistically pay back; the inefficiencies within income-driven repayment plans; the stringent rules against discharging student loan debt in federal bankruptcy actions; the lack of institutional accountability; and the need for additional training for financial aid auditors. Part V discusses legislative and administrative solutions to the student loan crisis. Part VI discusses the potential for antitrust litigation to address the student loan crisis through the lens of the pending class action case Henry v. Brown University. In conclusion, this Note discusses what measures the United States can take to allow federal funding to better serve higher education students while alleviating the nation's student loan debt burden.

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There are many causes for the federal student loan crisis. The fallout from the student loan crisis disproportionately impacts Black student loan borrowers compared to students of all other racial demographics. The main reason Black students face a greater impact from the student loan crisis than other racial demographics is the engineered wealth gap between White and Black individuals. This wealth gap, along with the increased cost of higher education, forces Black students to rely upon federal student aid programs more than students of other races. This increased reliance disproportionately exposes Black students to the flaws within the federal financial aid system.

If the plaintiffs in Henry v. Brown University prevail, the treble damages provided by the Sherman Act could help alleviate the class action members' inflated student loan debt caused by the artificially high prices engineered by the 568 Presidents Group. While the outcome of Henry v. Brown University remains to be seen, antitrust suits provide a potential legal remedy for student borrowers wronged by inherent flaws in the modern student loan system. For future research into legal remedies for the student loan crisis' disproportionate impact on Black students, scholars should look into anti-discrimination law and “reverse redlining” in the context of higher education. Reverse redlining is the practice of targeting borrowers of color for loans on unfavorable terms. Given the high interest rates and the secretive practices of the private student loan market, it is entirely possible that private students loans are subprime loans that may operate similarly to the mortgage crisis' subprime loans. Future scholars should look at the application of anti-discrimination law to reverse redlining in higher education, but a complete survey of legal techniques on this topic is beyond the scope of this Note.

Ultimately, pursuing litigation after student loans are originated, disbursed, and in repayment is not the most effective method for dealing with the student loan crisis. In addition to providing legal remedies for wronged student borrowers, policymakers should focus on restructuring the financial aid regulatory scheme. The U.S. should introduce more progressive programs by prioritizing IDR over standard loan repayment, student borrower bankruptcy relief and expanding need-based grants in lieu of the subsidized student loan program. By enacting these measures, future generations will not be as burdened by student loans and federal funding will better serve higher education students.

Stephanie Kaczowski is a J.D. Candidate at Albany Law School, who is scheduled to graduate in May 2024.