New data show that the gap in outstanding student loan balances between Black and white students shrunk even as the share of Black households with student debt rose during the suspension of student loan repayment and interest accrual because of the COVID-19 pandemic.

Student loan borrowing, repayment, and default have shown disparate outcomes and experiences by race and ethnicity before the payment pause, with non-Hispanic Black students in particular borrowing more and having more difficulty repaying than their white peers because of labor market discrimination, gaps in inherited wealth, and other structural barriers.

As the White House and Congress consider policy interventions around loan forgiveness and interest accrual outside the context of the pause, these trend data by race offer a window into how policy can better support borrowers and narrow racial debt burden gaps.

More Black households have student loan debt, but balances have decreased

Using the 2022 Survey of Consumer Finances, we see deviations from previous years in two key trends related to the intersection of student loan debt and race. First, the share of Black households with student debt remained steady from 2013 to 2019 but increased from 30 percent to 36 percent between 2019 and 2022. During the same period, the share of white households with debt stayed flat at 20 percent.

Second, before the pause, the median amount of student debt held by Black households had increased for more than a decade, reaching $35,000 in 2019. White households, comparatively, held $27,000 in student debt in 2019. But between 2019 and 2022, median debt in Black households dropped to $26,000 while white households fell to $25,000. Hispanic households also saw a substantial decrease in debt balances, though their balances had decreased during the preceding three-year period as well.

Taken together, these data show that more Black households have student loan debt than before the pandemic student loan payment pause, but they typically hold lower balances than before the pause.

Possible causes of these trends

Evidence shows that although some borrowers continued to pay down their loans, most did not make regular payments during the pause. As few borrowers would’ve fully paid off their loans during this time, and combined with new students continuing to take on loans, a rising share of households having student loan debt may be expected. But other racial and ethnic groups didn’t see increases in debt holding.

Black households’ rise in debt holding could be partially explained by the pandemic negatively affecting Black households more than white households. As a result, Black households may have been more likely to use student loans to finance their education during the pandemic than they were before, causing this disproportionate increase in debt holding.

These newer borrowers may have also helped lower the median debt amount among Black households, as students borrowing for the first time likely do not have large amounts of debt, particularly if they’re still in school. Further, interest accrual is a major factor in widening the Black-white debt gap over time, so setting interest rates to zero during the pause may have prevented balances from growing more for Black households.

Similarly, most borrowers weren’t at risk of defaulting during the payment pause, and the government was not collecting on defaulted loans. Collection efforts are associated with additional fees that can cause borrowers’ balances to remain high while they’re in default. Student loan default disproportionately affects Black borrowers, so protecting borrowers from default and its associated fees may have also played a role in keeping Black borrowers’ balances down.

How can these trends inform student loan policy?

The Biden administration is considering providing targeted loan forgiveness to vulnerable borrowers, including those who owe more than they originally borrowed and those who entered repayment at least 25 years ago. Because Black borrowers are more likely than white borrowers to owe more than they borrowed and hold student loans for longer, this plan could narrow the gap in debt-holding households. In the long term, states and the federal government could offer more need-based grant aid to students to minimize the amount of debt new students take on.

Because interest accrual contributes to debt balances growing faster for Black borrowers than white borrowers, the new income-driven repayment plan—Saving on a Valuable Education (SAVE)—could help narrow the gap. SAVE waives any interest not covered by a borrower’s required payment. As the payment pause showed, Black borrowers’ median balance decreased when no interest was charged, a trend the SAVE plan could keep intact. Historically, vulnerable borrowers are less likely to successfully navigate the administrative burden associated with income-driven repayment, so reaching out to borrowers and automating enrollment and recertification processes is essential for maximizing participation.

Similarly, preventing defaulted borrowers from amassing collection fees could keep median loan balances trending down. As the US Department of Education considers changes to debt collections practices, rethinking how it assesses collection fees could help keep vulnerable borrowers from seeing unnecessarily high balances.