Resource Category: Borrowing and Debt
In the United States, borrowing can be a key means for investing in one’s family and future, including for common household investments like college tuition and home mortgages. However, borrowing has also been subject to discriminatory and predatory practices, leading debt to sometimes be used as a tool of wealth extraction rather than wealth creation.
Why Borrowing & Debt Matter
Taking on debt can be an important tool for investing in the future or spreading out the cost of an expensive purchase that will have a long useful life. Many people take on student loans to invest in their own human capital development, hoping that education today leads to greater earning potential in the future. Likewise, building equity through owning a home or starting a business is often impossible in many high-cost markets without first obtaining a loan.
Nevertheless, not all debt is the same. There’s been a long history of predatory lending and deceptive banking practices in the United States, which tend to be wealth-extracting rather than wealth-enhancing. Forced to Walk a Dangerous Line, for instance, details how many lower-income Americans are often the victims of predatory lending practices like subprime mortgage loans, payday lending, and rent-to-own furniture stores. This research shows that these predatory lending practices have especially targeted Black Americans, creating yet another hurdle in their efforts to build wealth.
Extending beyond the most extreme examples of predatory lending, there are persistent racial disparities in access to all sorts of “good” debt. Black Americans continue to be more likely to be denied home loans, for instance, even when comparing families earning similar incomes. Or they may receive a loan offer, but at a higher interest rate. In addition, there are a variety of troubling racial disparities in the financing of college, as highlighted in How Student Debt and the Racial Wealth Gap Reinforce Each Other.