As Americans we like to pride ourselves on the ideal of the American Dream. The reality, as recent decades have made clear, is much harsher. Parental income and geography have a huge impact on success. The middle class is shrinking. Upward mobility in the United States has steadily declined with each new generation. Income inequality and stagnating wages make it increasingly difficult for those from less privileged backgrounds to attain success. The World Economic Forum’s 2020 Global Social Mobility Index ranked the U.S. in 27th place, behind many other developed nations.
One of the biggest impediments to increased social mobility is access to capital. Historically, processes such as redlining and lending discrimination have barred people of color from having access to the same financial institutions as white people. Without sufficient financial assets, starting and growing a small business is almost impossible, homeownership is far more difficult and even acquiring the loans necessary to fund a college education can be much harder. All of the hallmarks of the American Dream are far more difficult to attain.
The discriminatory practices that bar access to capital haven’t gone away: Black small business owners have not received the same support in loans and lines of credit compared to white small business owners; banks prioritize funding for those with whom they have longstanding relationships, which are predominantly white people. The home ownership gap between white and Black Americans is wider than it was 50 years ago, due to the persisting legacy of redlining and gentrification and the continued discrimination of real estate agents against Black and Hispanic families. In addition, these families are disproportionately granted loans with adjustable rate mortgages, which cause rates to increase after just a few years. The Student Borrower Protection Center, a nonprofit seeking to combat student loan abuses, recently found that Black and Hispanic students may face higher rates on student loans due to the use of educational data by private companies in determining creditworthiness.
In light of these findings, President Joe Biden’s administration needs to prioritize not merely rebuilding the middle class, as Biden has often referenced, but taking action against discriminatory practices that make capital, and by extension the middle class itself, inaccessible. Biden should enact laws that help Black business owners receive loans at the same level of access as their white counterparts do, by requiring more transparency and accountability from banks and by standardizing what can and cannot be considered in determining whether or not a loan is granted. Without these added requirements, it will be too easy for the legacy of racism to persist.
In terms of the accessibility of home ownership, the Biden administration should take steps to strengthen the Equal Credit Opportunity Act and the Fair Housing Act, continuing their work to keep race-based discrimination out of real estate practices. Further, the Biden administration should reform government housing lenders to reach out to underserved Black communities. According to the 2019 Census, 58% of Black American households are rented. Providing monetary assistance and incentives would be one major step to increase the accessibility of homeownership.
To improve accessibility to the capital required to obtain higher education, the way in which private companies look at credit needs to be regulated by the federal government. At present, the practices of these companies have led to students of color paying more in loans than their white classmates. A way that does not allow these companies to charge students of color at a higher rate is needed.
The Biden administration needs to investigate the current practices of banks and other financial institutions and eliminate this systemic racism. Otherwise, banks will continue to enhance privilege by lending only to those who already have substantial assets. If we take steps to fix our country’s systems, we can restore the American Dream; if we do not, it will only slip further away.
