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Does Student Loan Debt Contribute to Racial Wealth Gaps? A Decomposition Analysis

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  • Venoo Kakar
  • Gerald Eric Daniels
  • Olga Petrovska

Abstract

There is evidence of a large and growing student debt burden over the last decade. Previous research has shown that the presence of student debt jeopardized the short‐term financial wealth of U.S. households during the Great Recession. We examine the effects of student loan use on the wealth of U.S. households post‐recession, using recent data from the 2013 and 2016 Survey of Consumer Finances. We find that mean 2016 wealth for households with no outstanding student debt is more than four times higher than households with student debt. We find that living in a household at the 15th, 30th, 50th, 70th, and 85th percentile of the wealth distribution with student debt is associated with an 80%, 49%, 37%, 35%, and 36% wealth loss compared with a similar household with no student debt. Our decomposition results suggest that student loan use can explain between 3% and 7% of the Black‐White wealth gap across the wealth distribution but is insignificant in explaining the Hispanic‐White wealth gap.

Suggested Citation

  • Venoo Kakar & Gerald Eric Daniels & Olga Petrovska, 2019. "Does Student Loan Debt Contribute to Racial Wealth Gaps? A Decomposition Analysis," Journal of Consumer Affairs, Wiley Blackwell, vol. 53(4), pages 1920-1947, December.
    • Handle: RePEc:bla:jconsa:v:53:y:2019:i:4:p:1920-1947
    DOI: 10.1111/joca.12271
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    Cited by:

    1. Luke Petach & Daniele Tavani, 2021. "Differential Rates of Return and Racial Wealth Inequality," Journal of Economics, Race, and Policy, Springer, vol. 4(3), pages 115-165, September.
    2. , 2021. "Racial Wealth Disparities: Reconsidering the Roles of Human Capital and Inheritance," Working Papers 22-3, Federal Reserve Bank of Boston.
    3. Hope Bodenschatz & Gerald Eric Daniels Jr. & Jeffrey P. Thompson, 2023. "Decomposing Lifetime-Earnings Differences between White, Black, and Hispanic Families," Working Papers 23-14, Federal Reserve Bank of Boston.
    4. Alice Henriques Volz & Jeffrey P. Thompson, 2021. "A New Look at Racial Disparities Using a More Comprehensive Wealth Measure," Current Policy Perspectives 92970, Federal Reserve Bank of Boston.
    5. Jermaine Toney, 2022. "Is there wealth stability across generations in the U.S.? Evidence from panel study, 1984–2017," Contemporary Economic Policy, Western Economic Association International, vol. 40(4), pages 551-567, October.

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