- “The Debt Trap” lays out how President Johnson thought student loans would combat racial inequality.
- Johnson’s Higher Education Act was part of his “War on Poverty,” but student loans took a different course.
- Today, communities of color bear a disproportionate student-debt burden.
More than probably any other president, President Lyndon B. Johnson was known for his “war on poverty,” but a new book lays out how his crusade led to the creation of student debt — and the worsening of racial inequality, the exact problem Johnson was trying to fix. Today, student-loan debt hurts Black Americans much more than white ones.
The Wall Street Journal’s Josh Mitchell has covered student loans for years, and his new book “The Debt Trap” details the rise of the student-loan system. It largely started with Johnson’s vision of creating a fair way for everyone to attend college and reduce poverty.
In his 1964 State of the Union address, Johnson introduced a series of policies that sought to address that time’s 19% national poverty rate. In the decade following the introduction of those policies, the poverty rate was nearly cut in half to 11.1%, according to census data, and it has stayed between that rate and 15% since, most recently 10.5% in 2019.
This war on poverty encompassed higher education, which “is no longer a luxury but a necessity,” Johnson told Congress in January 1965. He said expanding the government’s role in higher education would also be effective poverty reduction.
“The administration assumed that everyone would come out of college with a degree, land a well-paying job, and repay the debt with ease,” Mitchell writes.
Johnson needed banks to make loans to anyone who needed them to fulfill his goal of universal access to higher education, and he thought he had done that with the passage of the Higher Education Act of 1965, which included scholarships for poor people and guaranteed loans for the middle class.
Shortly after the Act’s passage, though, banks began raising interest rates on student loans, and the system came to profit lenders at the expense of pushing more and more borrowers further into debt and default. Mitchell highlights the firm Congress created in 1973, Sallie Mae, as prioritizing “enormous profits” off of lending to borrowers, “often leaving borrowers in the lurch.” Now known as Navient, the company has come under fire from lawmakers including Sen. Elizabeth Warren, who excoriated its CEO for abuses in a Congressional hearing earlier this year.
Johnson thought his student-loan program would solve racial and income inequality by increasing every American’s ability to access a higher education, but today, the student-debt burden falls disproportionately on Black borrowers, the opposite of what Johnson intended.
In April, Insider reported that 36 civil rights organizations released civil-rights principles detailing the benefits that student-debt cancellation would have on Black borrowers. The organizations, including the NAACP, wrote that Black borrowers typically owe 50% more student debt than white borrowers, and four years later, Black borrowers owe 100% more.
President Joe Biden’s administration is aware of this. HUD Secretary Marcia Fudge, a Black woman, told Axios in June that poor people and people of color hold the most student debt, requiring reform.
“Who has student debt? Poor people, Black people, brown people,” Fudge said. “We’re the people who carry most debt. And so the system’s already skewed toward us not being creditworthy.”
Biden himself campaigned on forgiving student debt for borrowers who attended Historically Black Colleges and Universities (HBCUs) and minority-serving institutions, but he has not yet fulfilled that promise.
Democratic lawmakers believe $50,000 in student-debt cancellation is the best way to help all borrowers, and especially borrowers of color, and help achieve what Johnson sought out to do.
“$50,000 would help close the racial wealth gap for those with student loan debt,” Massachusetts Sen. Elizabeth Warren told Insider last month. “And it would wipe out all outstanding debt for about 38 million Americans, which would provide an enormous boost to our economy.”