Billionaire Robert F. Smith’s surprise announcement at the Morehouse College commencement on May 19 that he would establish a grant to pay off the graduating class’s student debt left nearly 400 graduates stunned and thrilled. But it also raised questions ranging from the mechanical (How will the grant be administered?) to the philosophical (Why is an affordable college education out of reach for so many?).
What’s in, what’s out, and what it means to repay loans en masse
Providing debt relief to hundreds of individuals, many of whom are working with multiple lenders, will be complicated, prompting questions about the nuts and bolts of administering Smith’s gift.
For starters, whose debt, exactly, will be forgiven? Answer: Debt taken out by the students is covered; parents’ loans are not, according to The Washington Post.
Will beneficiaries have an Oprah-esque “You get a car!” experience, left to pay taxes on an unexpected prize? Answer: Unlikely, according to the Post’s Michelle Singletary, although the “specifics of how his gift will be handled, including any tax implications, are still being worked out.”
How, exactly, will loan repayment for so many people be managed? Answer: Very carefully, considering that “[s]tudent loan repayment can be a complicated business, involving not only the borrower and the university, but also companies paid by the federal government or private lenders to service the debt,” the Post reports. The details are still being worked out, but Morehouse’s “financial aid office will probably be charged with identifying eligible graduates and reaching out to their loan servicers to dispense the grant.”
‘What about everyone else?’
Like Michael Bloomberg’s $1.8 billion gift last year to make Johns Hopkins University “forever need-blind,” Smith’s gift to Morehouse has led some to wonder about the role of private philanthropy in addressing college access and affordability. A New York Times op-ed notes that the nation is “applauding acts of philanthropy necessitated by failures of policy,” comparing the affordability crisis in higher education to that of health care, where people regularly turn to crowdfunding sites like GoFundMe to cover treatment costs.
The challenge of paying for college is particularly acute for Black students, who “are more likely to take out student loans than their white peers,” graduate with $7,400 more in debt than their white peers, and owe almost twice as much as white graduates four years after graduation. Meanwhile, HBCUs like Morehouse have much smaller endowments than other four-year institutions, Vox reports, in part because “a combination of discrimination, lower pay, debt, and other financial obligations” leave alumni with fewer financial resources, meaning they’re less able to give to their alma maters.
At Morehouse, 60 percent of students who don’t graduate blame financial challenges—a data point that the Post reports inspired Smith to make his gift. “How many more Smiths are out there, ready to swoop in?” asks Adam Harris of The Atlantic.
What can we learn from the ‘natural experiment’ created by Smith’s gift?
Smith’s decision to provide debt relief to a single Morehouse class provides economists with an opportunity to study whether “having zero student loan debt causes certain outcomes in the future—like having higher salaries, greater household wealth, more graduate degrees,” Vox notes.
While not a true randomized experiment, the fact that the Morehouse classes of 2018 and 2020 are likely to be similar in composition “enables economists…to conduct an analysis 10-15 years from now comparing the incomes, indebtedness, [and] graduate attainment” of 2019 graduates versus control classes of students who didn’t receive debt relief. The results could help economists better understand the long-term impact of student loan debt and assess potential solutions.