Excerpted From: Magali Duque, Contracting for Debt: The Relationship Between Debt Capitalism, Higher Education, and the Black-Wealth Gap, 58 Harvard Civil Rights-Civil Liberties Law Review 415 (Winter, 2023) (226 Footnotes) (Full Document)


MagaliDuqueIn 2009, a Black American couple, Frederick and Terri Lynn Greene (the “Greenes”), filed an appeal in the Seventh Circuit to discharge their student loan debt under chapter 7. Four years earlier, the Greenes had gone through a bankruptcy proceeding, yet still owed student loans totaling $207,000. In 2006, to eliminate the remaining debt, the Greenes filed a complaint against the U.S. Department of Education (DOE), requesting that their student loan debt and any associated interest or penalties be discharged. They specifically alleged that the government's negligence had resulted in “excessive interest and penalties” being attached to their loans, which posed an “undue hardship[.]” As “reparations for slavery and discrimination,” the Greenes argued that their loans should be discharged. In 2008, the district court in Greene v. U.S. Department of Education denied their request and granted the government's motion for summary judgment as recommended by a magistrate judge. The Seventh Circuit reaffirmed on appeal. district court provided a long-winded justification for denying the Greenes' reparations claim. It noted that the Greenes failed to file a timely response to the government's request for admission, interpreting a discovery error as an admission of fault. The district court also stated that Frederick Greene's claims about law school misrepresentation and discrimination “can only be linked through historical ties to slavery,” and because his enslaved ancestors had passed away, the claim was barred by the statute of limitations. The decision is not surprising. Most reparations lawsuits falter because they have been barred by statutes of limitations, and courts apply the political question doctrine to avoid making decisions that they feel would be more appropriately addressed in Congress. the district court dismissed the Greenes' case largely on procedural grounds, the arguments outlined in the Greenes' affidavits highlight the impact that taking out student debt to obtain higher education can have on Black Americans. Frederick Greene asserted in his complaint:

The Department of Education has alleged that by virtue of my law license I can earn substantially more than the $40,000+ I now earn as a college professor. From 1988 until 1997 I was engaged in the private practice of Law in Lansing, Michigan. I did not net in any of those years income in excess of my present earnings. In each and every year while practicing law, and in each and every year since, I have attempted to find higher paying employment to no avail. Law firms and corporations will not hire me because I am an older African American male. Less than three percent of all lawyers in America are African American. Greene's statement highlights the pervasiveness of structural inequality stemming from slavery, the price of higher education, the credit system, and the labor market. In theory, incurring debt to obtain a college or graduate degree is an asset conversion process. However educational and professional attainment has clearly not resulted in wealth gain for all Black Americans. Instead, it has mostly resulted in downward mobility, negative or null net worth, and in some cases, bankruptcy, and poverty. scholars researching Black American wealth accumulation have explored the relationship between a lack of property ownership and the wealth gap as a consequence of slavery, de jure and de facto segregation, sharecropping, incarceration, and redlining. However, not much research has been conducted on how, by maintaining racialized economic hierarchies, the disparate impact of student loan debt on the widening Blackwhite wealth gap has created a modern student debt peonage system. This system is defined by entering into labor contracts and repayment plans to pay off student debt in pursuit of an illusion of economic freedom. The parallel between debt incurred for a physical asset, which has been used as an intergenerational wealth building mechanism, and debt incurred for the purposes of obtaining a degree, which would hypothetically provide increased social and financial capital, reflects the property interest in higher education. By virtue of the expected market value of a degree and labor involved, the degree is effectively personal property. Property is an asset premised on the legal right to exclude and because slavery was premised on the ownership of people as property, as Professor Harris argues, whiteness and property both share the “right to exclude.” Whiteness comes with a set of rights and privileges acknowledged and protected by American law and is an asset that continues to yield returns for white Americans. Yet, because non-white Americans are not similarly situated, their personal property, such as their degrees, do not offer comparable returns. As such, modern student debt peonage requires individuals, in particular Black, Brown, and Indigenous students, to indebt themselves to pursue social mobility, only to find the financial ladder seriously weighed down by student debt. this Note, I argue that, given the systemic barriers to building wealth, entering higher education, and obtaining high-income careers, Black Americans are disproportionately and involuntarily obligated to contract for debt in pursuit of higher education, increased wages, ownership, and intergenerational wealth. When it comes to incurring student debt, one assumption may be that students voluntarily contract for debt by taking out loans to pay for their education if they do not have the financial means to pay for their degree. However, I reject this premise. I argue that the student loan complex sells a false promise that higher education leads to economic freedom for all. Instead, there exists an invisible unequal market relationship in which education serves as a prerequisite to enter the labor market in an economically meaningful way. This invisible relationship distorts the reality of education and employment as a direct avenue for full economic participation when, in fact, a racialized group is coerced into indebting themselves to participate in the economy and labor market with less rewarding outcomes. Stemming from this relationship, student loan contracts do not merely memorialize a transaction between lender and borrower, but rather reflect dynamic and deeply inequitable racialized economic contracts that are unconscionable. As the doctrine of unconscionability outlines:

If a contract is unfair or oppressive to one party in a way that suggests abuses during its formation, a court may find it unconscionable and refuse to enforce it. A contract is most likely to be found unconscionable if both unfair bargaining and unfair substantive terms are shown. An absence of meaningful choice by the disadvantaged party is often used to prove unfair bargaining (emphasis added).

These racialized student loan contracts are unconscionable because they are embedded with historical ties to slavery and state-sanctioned disenfranchisement, demonstrating an absence of meaningful choice for Black Americans and culminating in the ever growing Black-white wealth gap driven by what I call “debt capitalism.”

I define debt capitalism as a racially exclusionary system, stemming from slavery, in which asset acquisition, facilitated by working to pay debt, (1) is a requirement for inclusion in the economic market, and (2) has a disparate impact on Black Americans by excluding them from wealth building given their bargaining power position. I argue that altering the unequal bargaining power that Black students have with the federal government would reduce the disparate impact of debt capitalism on Black American wealth building, providing individuals at all income levels meaningful choice in shaping their own economic trajectory. By virtue of this shift in position, Black Americans would have the opportunity to act as full participants in the global economy rather than be excluded by debt capitalism.

In Part I, I first explore how debt capitalism was established during legalized slavery in the United States and reinforced by indentured servitude practices, namely peonage. In Part II, I trace the legislative history of civil rights, higher education, credit, and debt legislation. This history serves as the backdrop of the emergence of student loans as a key feature of debt capitalism in the 20th and 21st centuries, reinforcing racialized economic hierarchies under the guise of access and social mobility. In Part III, I provide insight into how bankruptcy law has affected Black American debt burdens through the Greene case and why contracts enforcing student debt repayments to the U.S. government are unconscionable. I then unpack how bankruptcy chapter filings and courts disfavoring student loan discharges reinforce coercive contractual power relations akin to peonage, as demonstrated by In Re Gordon. In such contractual relations, debtors are viewed as having the “keys to the shackles” even if “[e]conomic necessity may discourage [them] from freeing [themselves].” These bankruptcy trends, in addition to contract law, inform some of the frameworks I use for evaluating implications for restitution. Finally, in Part IV, I propose several opportunities to reduce the growing Black-white wealth gap and eliminate debt peonage. These proposals transform the core contractual relationships in the credit market, such as by re-categorizing borrowers into financially vulnerable and financially secure groups and restructuring student debt instruments.

[. . .]

Debt is an important regulator of inequality. Black Americans continue to leverage higher education in pursuit of financial freedom only to find a lack of debt-to-asset conversion and a growing Black-white wealth gap. The freedom to contract for debt as a Black borrower continues to be intercepted by an oppressive credit market and predatory definition of risk, as seen through modern student debt peonage. Major policy changes are required to shift this trajectory, invest in education, provide Black Americans with capital and reparations, and create a more humanizing and equitable credit system that would alleviate the negative externalities of debt capitalism by reducing the Black-white wealth gap. Partial loan forgiveness is a one-time debt reduction that will help some, as will new undue hardship factors, but these efforts will ultimately only address symptoms of the student debt crisis as opposed to its root cause. To find a sustainable solution to the student debt crisis and reduce the Black-white wealth gap, the federal government needs to abolish the current student debt complex. Instead of this system, higher education needs a new source of funding and a shift in perspective regarding consumer debt.

With a new framework for credit market relationships rooted in opportunity rather than debt, new types of “debtors” can exist and thrive: credit-borrowers (designating the financially secure) and credit-opportunity recipients (representing the financially vulnerable). These new credit-borrower and credit-opportunity recipient categories can help provide the basis for mobilizing debt relief policies as first steps towards closing the Black-white wealth gap. In doing so, modern debt peonage could be eliminated for all marginalized groups and our economy could shift away from reliance on debt capitalism to provide more opportunity for equitable intergenerational wealth accumulation and collective financial wellbeing.

University of Pennsylvania Carey Law School, J.D., 2022. London School of Economics and Political Science, M.Sc., 2016. Stanford University, B.A., 2015