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What the Debt Ceiling Deal Means for Black Americans

Some experts worry that expanding work requirements and restarting student loan repayments would create a disproportionate financial burden.

NAACP President Derrick Johnson has called on Congress to reject proposed changes to work requirements in the debt ceiling compromise, adding that they “play on racist stereotypes masquerading as sound policy.” (J. Scott Applewhite/Associated Press)

Though the U.S. Senate passed a bill to suspend the debt ceiling for two years, the federal plan to impose stiffer work requirements on food stamp recipients and mandate an end to the student loan repayment freeze could create an outsized financial burden for Black Americans, some experts say.

The proposals are part of a compromise between Republican leaders and the Biden administration to raise the debt ceiling and stave off a potential cataclysmic economic crisis. President Joe Biden said that he looks forward to “signing this bill into law as soon as possible.”

“We know kind of intuitively that a default would likely be catastrophic, even if we don’t know the specific contours of it,” explained Michael Neal, a principal research associate in the Housing Finance Policy Center at the Urban Institute. “We also know that when these events happen, Black communities are usually hit the hardest.”

NAACP President Derrick Johnson laid out his concerns about the negotiations in an open letter to Congress earlier this month. He underscored that “any resolution to the House GOP’s manufactured debt ceiling crisis” shouldn’t come at the expense of Black Americans.

“Proposals to change eligibility requirements such as adding new work requirements must be resoundingly rejected. These proposals are designed to play on racist stereotypes masquerading as sound policy,” he wrote, adding, “Do not accept the false choice between triggering an utterly avoidable economic catastrophe driven by politicians; or imposing costs and new harms on Black communities.”

Biden and House Speaker Kevin McCarthy were racing against the clock to secure passage of the deal before June 5 — the day U.S. Treasury Secretary Janet Yellen warned her department would no longer have enough money to pay the country’s obligations in full and on time.

Here’s a breakdown of how some of the key proposals in the debt ceiling plan could affect Black Americans and what a U.S. default could’ve meant for the country.

Expanding work requirements

The compromise: Current requirements restrict childless, able-bodied adults between the ages of 18 and 49 from receiving SNAP benefits unless they’re employed a minimum of 80 hours a month or in a work training program. The proposed legislation would extend those work requirements to age 54 for everyone except veterans, former foster youth, and people who experience homelessness.

The deal would also tighten the work requirements by changing how states calculate participation rates in the Temporary Assistance to Needy Families, or TANF, program, which provides cash assistance to households with children. The changes are set to expire in 2030.

How it affects you: If you’re currently between 50 and 54, you could lose your SNAP benefits after three months, and wouldn’t be able to apply again until after three years.

This could push many people deeper into poverty, experts say. Historically, the work requirements haven’t helped people secure sustainable jobs or make enough income to meet their basic needs. Recent research by the Congressional Budget Office found that the work requirements had little effect on employment and substantially reduced the number of people receiving the benefits.

“When people don’t have access to food — don’t have access to the cash they need to be able to pay their bills — that’s going to push them deeper into poverty, and not just being poor, but the bad outcomes associated with poverty,” explained Peggy Bailey, the vice president for housing and income security at the Center on Budget and Policy Priorities. “Evictions, homelessness … their health gets impaired, their mental health gets impaired, their kids fall behind in school.”

The work requirement rule is a form of racism, gender discrimination, and ableism, argued Ty Jones Cox, the vice president for food assistance at the Center on Budget and Policy Priorities. It’s based on the faulty premise that Black people are lazy and don’t work. The requirement, she added, doesn’t take into account workplace discrimination and other employment barriers — such as health conditions — that make it difficult for people to work.

“We’re basically saying that your engagement in the workforce is tied to your ability to eat,” Cox said.

Michael J. Wilson, the director of Maryland Hunger Solutions, said that SNAP is a nutrition assistance program, not a jobs program, and that certain adults who receive benefits are working. Most SNAP participants are children, elderly people, and people with disabilities. Around 92% of all SNAP benefits go to low-income households.

“They’re just not getting enough income or hours to escape poverty,” Wilson said. “Why is that? That’s because we’ve had this growth of the low-income workforce, people who aren’t getting benefits — retirement benefits, health care benefits, even enough hours — so they apply for SNAP. … They’re the working poor.”

Continuing student loan repayments

The compromise: The legislation would require borrowers to start paying back their federal student loans by the end of the summer. The Biden administration instituted a pause on student loan repayments at the start of the COVID-19 pandemic as a way to alleviate the economic burden on borrowers as a result of the crisis. Since then, he’s continued to extend the repayment freeze as he awaits the U.S. Supreme Court’s decision on his $400 billion student loan forgiveness program. 

When Biden announced his student debt cancellation plan in August, he extended the freeze until the end of the year. He gave another extension in November, after a Texas judge halted his loan forgiveness program. The current repayment freeze ends on June 30, with payments due again 60 days after the pause ends. If the high court makes a decision before then, the payments will resume 60 days after the ruling.

Additionally, the debt ceiling deal would maintain Biden’s income-driven repayment plan, which lowers borrowers’ monthly payments and reduces the total amount they owe over time, CNN reported.

How it affects you: If you’re eligible, you can apply for the income-driven repayment plan, but the loan forgiveness plan would be especially beneficial, as it wipes out up to $20,000 of your student loan debt. However, once the repayment freeze ends, you’ll have to start making payments on your loans, whether you’re eligible for the income-driven repayment plan or not. With Biden’s program in limbo, it’s best to prepare now.

The debt repayment pause created a social safety net to prevent people from being “financially devastated” during the pandemic, Frederick Wherry, a sociology professor at Princeton University, told Teen Vogue. Without it, borrowers are at risk of falling behind.

In November, 46% of student loan borrowers said that they weren’t too confident about finances in the next six months, according to a Pew Research Center study. About 38% said that they were financially worse off when compared with the previous year.

“What the question for us now is, is whether or not this is the time to take that safety net away,” Wherry said. “And if you’re going to take it away now, then you have to ask yourself: Why now versus some future date?”

The bigger picture

Neal, at the Urban Institute, noted that no one knows what, precisely, the fallout from a U.S. debt default would’ve been — in large part because we’ve really never seen it before, where the global economic power doesn’t pay its bills.

Goldman Sachs analysts estimate that breaching the debt ceiling would’ve immediately killed one-tenth of U.S. economic activity. And researchers at the public policy think tank Third Way figure that a default could’ve resulted in the country shedding around 3 million jobs, caused a typical worker near retirement with 401(k) savings to lose $20,000, ramped up the average new 30-year mortgage by $130,000, made it more challenging to borrow for all kinds of loans, and increased the price tags for everyday items.

When we see shock-type scenarios, communities of color — especially Black communities — are often hit worse.

“If a default results in tighter credit conditions, that’s going to disproportionately hurt communities of color. If it results in expansive joblessness, that’s going to disproportionately hurt communities of color,” Neal said.

Crucially, in the aftermath of a default, recovery for Black communities would’ve probably lagged, since these communities were more vulnerable to begin with.

“Even if we [had] some recovery,” Neal said, Black communities wouldn’t be able to take advantage of the situation like everyone else, “in part because they’re more likely to have lower credit scores, in part because they’re less likely to have investments like stocks, and in part because the threat of joblessness is just much greater for Black communities.”

While Biden and McCarthy managed to whip up enough votes for their deal, the drama is merely delayed — not resolved. The agreement lifts the debt limit until early 2025.

“What will the country’s economic-slash-political situation look like then,” Neal wondered, “and what will it ultimately mean for renewed talks and their implications for Black Americans?”