BackMoment of joy changes to confusion as billionaire vow to erase students' debt
Almost three-fourths of students use federal loans, which has about 2,100 male undergradsSmith hasn’t clarified how the gift will be structured or the mechanics of how it will be used to pay off the students’ debt
PremiumNew York: Billionaire Robert F. Smith stunned students at Morehouse College when he vowed to pay off the student loans of every member of the class of 2019.
“On behalf of the eight generations of my family that have been in this country, we’re gonna put a little fuel in your bus," Smith, 56, founder of Vista Equity Partners, said on Sunday during his commencement speech to the Atlanta college’s graduating class. “My family is going to create a grant to eliminate your student loans," Smith added, according to a Twitter post by Morehouse.
Almost three-fourths of students use federal loans at the historically black college, which has about 2,100 male undergrads, according to Education Department data. With $1.6 trillion in outstanding student debt, the issue is often mentioned during commencements, in addresses and decorated on graduation caps.
The typical debt for the 73% of Morehouse undergraduates who take out federal loans and complete college is $26,000, according to government data. That doesn’t include private lending or federal loans made to their parents. The school told the Atlanta Journal-Constitution it will cost an estimated $40 million to retire the debt of the graduating class, which totals about 400 students.
Smith hasn’t clarified how the gift will be structured or the mechanics of how it will be used to pay off the students’ debt. A spokeswoman for the college didn’t have an immediate answer on how the payback would work, while a spokesman for Smith didn’t immediately respond to a request for comment.
One way would be for Smith to give a grant to the school, whose financial aid office keeps track of federal loans, said Ben Miller, a former Education Department staff member who is now vice president for post-secondary education at American Progress, a left-leaning think tank. It’s possible the financial aid office may not have information about private loans, he said, and warned that some debt forgiveness programs have resulted in tax bills for recipients.
“It is an amazing and generous surprise that should be applauded," Miller said. “But instead of relying on one-off acts of generosity, Congress should raise taxes on the ultra-wealthy to fund college affordability and other key social supports."
Federal student loans are the only consumer debt segment with continuous cumulative growth since the Great Recession. As the costs of tuition continue to escalate, the result is a widening default crisis that’s causing concern for Fed Chairman Jerome Powell. There was $1.6 trillion in outstanding debt through the first quarter of 2019, while delinquent U.S. student loans reached a record $166 billion at the end of 2018.
Unlike consumer debt, student loans are almost impossible to cancel through bankruptcy, though federal education debt is discharged upon death.
Tuition and fees at Morehouse are about $27,600 for the current year, according to federal data. That doesn’t include costs such as room and board, books or transportation.
Smith, the richest black person in the US with a net worth of $4.5 billion on the Bloomberg Billionaires Index, had already announced a $1.5 million gift to Morehouse.
Students cheered at the news that he was also relieving the class of 2019’s college debts.
“If I could do a backflip I would. I am deeply ecstatic," Elijah Dormeus, a business administration major who’s graduating with $90,000 in student loans, told the Journal-Constitution.
Darrell Larome, a drama major who graduated Sunday, said not everyone in attendance immediately heard Smith’s offer during the ceremony.
“Some of us heard what he said and some of us didn’t," said Larome, who’s from Prince George’s County, Maryland. “But once everyone caught wind of what he said when he repeated himself, everyone was just really excited."
Larome said he’s been watching Smith’s Instagram page for any news. “I’m eager and antsy to find out what it is that he does do," he said in a phone interview Monday.
Smith is the founder and chief executive officer of Vista Equity Partners, a private equity firm with $56 billion under management. Its holdings include workflow manager Autotask and ticket marketplace Vivid Seats. Smith graduated from Cornell University and Columbia Business School.
He joined Goldman Sachs Group Inc. as a tech investment banker in 1994, working in New York and then San Francisco before leaving to start Vista in 2000, which focuses on the enterprise software sector. He’s been chairman of Carnegie Hall since 2016.
Smith signed the Giving Pledge in 2017, promising to invest half his net worth during his lifetime toward protecting the environment and supporting equality.
“Potential is no guarantee of progress," he wrote in his 2017 letter. “We will only grasp the staggering potential of our time if we create onramps that empower ALL people to participate, regardless of background, country of origin, religious practice, gender, or color of skin."
Morehouse’s endowment is $145 million, according to the most recent data from the National Association of College and University Business Officers. Atlanta-based Emory University’s endowment is $7.3 billion.
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