According to the National Equity Atlas, racial gaps in income cost the United States about $2.5 trillion in 2015.1 Many economists believe that racial equity is a superior growth model and that by closing both the race income and wealth gaps, our nation will reap significant economic benefits by uprooting policies that have systemically excluded communities of color, leaving millions in poverty. They call this the “Equity Dividend.”2 Assets are critical to building wealth. But because of our nation’s long history of systemic and institutional racism, Black Americans have had limited opportunity to accumulate wealth and pass it down from generation to generation.
Congress should support Senator Cory Booker’s (D-NJ) American Opportunity Accounts Act to create “Baby Bonds” aimed at mitigating the growing gap between American families by creating a seed savings account at birth for American children based on family income. These funds would sit in an interest-bearing account that would receive additional deposits each year depending on family income until the child becomes a young adult. These accounts will increase an individual’s asset base, allowing them to put a down payment on a future home, finance their education without debt or start a small business.3 While Senator Booker’s plan does not explicitly consider the child’s race as criteria for eligibility, wealth is so unevenly distributed across races that children of color will undoubtedly benefit from this proposal.4
More than 40 million American adults currently carry a balance of federal student loan debt, which now exceeds $1.5 trillion.5 Student loan debt has an acute effect on borrowers of color who are more likely to borrow and hold higher balances, which undermines wealth accumulation over time. The average Black and white adult maintains balances of $43,725 and $31,357, respectively, in student loan debt.6 By cancelling federal student loan debt, studies suggest that this will result in a corresponding accumulated savings of the same amounts spread out over time for Black and white borrowers.7 COVID-19 will have significant impacts on higher education and graduation rates. Further, it will have lasting impacts on the job market for college graduates. Carrying tens of thousands of dollars in federal student debt during the coming economic slump will serve as a heavy burden upon our workforce from under which they will never come out. Furthermore, evidence suggests that 12 percent of Black and white high school graduates forgo college because of costs and preferences to not accumulate debt. Because of the racial wealth gap, students of color have less access to some external sources of funding, such as grants or financial support from relatives, to provide a backstop to excess debt.8 To recover from this pandemic and make serious progress in closing our country’s racial wealth gap, Congress should cancel federal student debt and make college debt free.
Established after the 2008 financial crisis, the Consumer Financial Protection Bureau (CFPB) seeks to protect consumers from fraud, discrimination and about in the financial marketplace. It has fought discriminatory lending in auto loans, home loans and credit card industries as well as payday lending companies which are located in predominantly black communities. Since its creation in 2011 to 2017, the CFPB returned nearly $12 billion to 29 million victims of financial malfeasance, including more than $450 million to about 1 million fair lending abuse victims. CFPB has also defended the economically vulnerable and marginalized by addressing forced arbitration in financial contracts blocking victims from court.10 Sixteen million adults in America lack even a bank account, with Black and Latino Americans being five times as likely to be unbanked as whites, according to the Federal Deposit Insurance Corporation.11 Many of these individuals must rely on costly and risky alternatives and often fall victim to predatory financial lending practices that help drive the racial wealth gap. The economic hardship created by the COVID-19 pandemic will undoubtedly cause further financial distress for communities of color that have been targeted previously by unscrupulous lenders. It is essential that further efforts by the Trump Administration and congressional Republicans to weaken the CFPB be fought and that this critical agency be given further tools to protect vulnerable communities.