Billionaire Robert F. Smith made headlines last year with a $34 million donation to Morehouse College, in which he cleared student debt for 400 graduates and their families. Now, Smith is launching a new initiative, which seeks to broadly ease the debt burden of thousands of students attending historically Black colleges and universities (HBCUs).
On average, Black college students graduate from bachelor’s degree programs owing $7,400 more than their white peers. HBCU students also tend to borrow loans at higher rates than students at other types of institutions. “You think about these students graduating and then plowing so much of their wealth opportunity into supporting this student debt, that’s a travesty in and of itself,” Smith said.
An alternative to private loans for STEM majors
The new nonprofit, called the Student Freedom Initiative (SFI) is set to launch in the fall of 2021 at up to 11 HBCUs as an alternative to high-interest, fixed-payment private student loans and Parent PLUS loans, according to Inside Higher Ed. SFI expects to offer an average of $32,000 to each participating student across their junior and senior years, which they will pay back, based on a percentage of their income, for up to 20 years after graduation.
While SFI has not yet set its financing terms or named participating schools, SFI leaders say the program will initially be geared toward students pursuing science, technology, engineering, and mathematics majors. It is not intended to replace all student loans, they say, but rather to offer a more sustainable option for families who would ordinarily be forced to turn to private or Parent PLUS loans.
The initiative is backed by a $50 million grant from Fund II Foundation, Smith’s charitable organization, and intends to raise at least $500 million by October, in hopes of eventually being self-sustaining. Smith seeks to bring on 5,000 new students every year and hopes to someday expand to include all U.S. HBCUs and other minority-serving institutions.
‘It’s important that we do these things at scale’
Smith acknowledges that while his generous donation to Morehouse was a powerful gesture, there’s more that can be done to help students of color succeed. “I think it’s important that we do these things at scale and en masse because that’s how you lift up entire communities,” he told TIME.
“Of course, we all like the great one story, but I want thousands of these stories. And I want thousands of Robert Smiths out there who are actually looking to do some things in fields that are exciting to them and are giving back.”
‘It truly will come down to the details’
However, some consumer advocates have voiced concerns about the income-contingent payment program’s potential to replicate some unappealing features of more traditional income-share agreements. According to MarketWatch, lawmakers and consumer advocates worry that these types of programs may trap participants into repaying funds for a longer period of time than they would have if they had taken out loans.
“The potential for this type of funding mechanism to have a role to play in reducing the racial disparities when it comes to student loans—it truly will come down to the details of who has access to it, and what their experiences are in repayment,” said Dominique Baker, an education-policy professor at Southern Methodist University. “In these situations the terms and the fine print always matter,” Joanna Darcus, a staff attorney at the National Consumer Law Center echoed.
“It is a specific, actionable platform. It’s not going to solve all the world’s problems,” Fred Goldberg, a former IRS commissioner who works as outside counsel for the Student Freedom Initiative, told TIME. “It’s an opportunity to do something now that matters now, with the potential to transform both these institutions and generations of young African American men and women.”