As minute 33 approached in billionaire Robert Smith’s commencement address to Morehouse College’s class of 2019 Sunday, Khalil Downey, one of the graduates, was eager to get out of the hot Atlanta weather and receive his diploma.
“It was a dope speech by all means, but being out there and being in the heat it was getting a little long winded,” the 23-year-old said.
But by the time minute 35 rolled around, Downey was feeling differently. Towards the end of his address to the 400 Morehouse graduates, Smith announced that he was creating a fund to wipe away their student debt.
“The initial reaction amongst me and my peers was like, ‘Did he just say what I think he said?’” Downey said in an interview Sunday afternoon. “It’s hard to fathom. One individual — a lot of people have that power — but actually using that power for something like that.”
For Downey, Smith’s gift has the potential to alter the course of his life. Downey, who along with his parents is carrying a six-figure debt for his education, discovered his passion for photography and videography during his junior year at Morehouse.
Now Downey has the option to follow that passion, whether it’s towards starting his own business or somewhere else, he said.
“When that is wiped away in front of your eyes,” he said, “I just can think about … the financial freedom I’ll have.”
Courtesy of Khalil Downey.
As soon as Smith, the chief executive officer of private equity firm Vista Equity Partners, uttered the words “this is my class, 2019 and my family is making a grant to eliminate their student loans,” it became the commencement address heard round the world.
While generous — the gift is worth an estimated $40 million — and exciting, the donation highlights how acute our nation’s $1.5 trillion student loan problem has become, particularly for students of color.
Smith’s gift also offers a new model for the super-rich looking to make an impactful gift to higher education institutions — one that’s focused less on buildings and programs at the richest universities and more on direct financial assistance to the students and schools that need it most.
It sets a new standard for billionaires who give commencement speeches. “The gauntlet has been laid,” said Mark Huelsman, associate director for policy and research at Demos, a left-leaning think tank. “It also reminds us that public policy really does have a role to play. We should take a hard look at why this was needed in the first place.”
Black students are at a disadvantage
The government’s pull back from funding public colleges and tuition’s rising cost are trends that affect American families of all types, but they’ve had particularly pernicious impact on black students, which HBCUs like Morehouse, serve.
Black students are more likely to borrow to attend college, tend to borrow more and struggle more to repay their debt.
‘The more expensive the education becomes the less accessible it is to most people and many would argue especially to minorities, including black people.’
—Crystal DeGregory, a history professor at Kentucky State University
The racial wealth gap means that black families have less wealth to draw on than white families to pay for school and less of a cushion to rely on when repaying the debt.
“Black people in the American experience have long looked to education as a vehicle to personal, familial, communal and race advancement,” said Crystal DeGregory, a history professor at Kentucky State University, an HBCU.
“Access to education is important — and the reality is that the more expensive the education becomes the less accessible it is to most people and many would argue especially to minorities, including black people.”
While the gift will benefit the 400 students who receive student-debt cancellation most directly, HBCU leaders are hopeful it will draw attention to the schools, the students they serve their needs.
Over the past several years, many HBCUs have struggled financially due to a combination of factors. They include relatively small philanthropic and endowment resources compared to other colleges and the fact they’re more likely to serve students who come to college with less.
Getting the gift is ‘like a lottery’
“You have someone who is very high profile who is publicly displaying support for an institution like we’ve never seen before,” said Walter Kimbrough, the president of Dillard University, an HBCU in New Orleans.
At the same time, “it re-emphasizes for me that we still have large pockets of people that have nothing when they go to college and they’re going on a hope and a prayer that they’re going to be able to pay this off,” he said.
‘It re-emphasizes for me that we still have large pockets of people that have nothing when they go to college and they’re going on a hope and a prayer.’
—Walter Kimbrough, president of Dillard University
And HBCUs can’t rely on a repeat of this kind of generosity to help these students cope, Kimbrough said. He’s hopeful observers will see Smith’s donation and think about other ways they can offer support, such as endowing a fund to help students with their debt after college, or even offering to sponsor at least one student’s education. “This is a one shot opportunity — it’s like a lottery basically,” he said. “It’s not a strategy.”
And questions still remain about how far the donation will stretch. It’s unclear whether Smith’s gift covers the debt Morehouse parents took on to send their sons to college. (The school didn’t immediately provide clarification on that point.)
The racial wealth gap means that black families are particularly likely to rely on Parent PLUS loans — the government product parents can use to pay for their children’s college — to help finance school. They’re also more likely to struggle to repay it.
Student-debt forgiveness is now part of the conversation
But regardless of the particulars of Smith’s donation, experts believe it could help shift the public conversation surrounding student-debt forgiveness, which was recently propelled into the national spotlight, thanks to a plan offered by Senator Elizabeth Warren, a Democrat from Massachusetts, to cancel millions of students’ debt, if elected president.
For one, the offer creates a sort of natural experiment that researchers can use to study the impact of student loan cancellation on students’ lives.
“If I can get my hands on the student names, then it’s going to be my next paper,” quipped Marco DiMaggio, a professor at Harvard’s Business School. “It’s a perfect experiment.”
‘If I can get my hands on the student names, then it’s going to be my next paper. It’s a perfect experiment.’
—Marco DiMaggio, a professor at Harvard’s Business School
Earlier this month, DiMaggio and a co-author released a working paper, which found that borrowers who had their debts wiped away saw their incomes increase and were more likely to move. That paper was based on another natural experiment, where a group of borrowers already in default on their debt had it cancelled.
DiMaggio said the Morehouse gift provides an even better opportunity to explore the impact of debt forgiveness on things like social mobility because the spectrum of students and their loan situation is wider. He expects the experiment will show similar results to his working paper. “We’re going to see these students outperform because they’re not going to suffer from the debt overhang,” DiMaggio said.
In addition, the gift and the conversation around it could influence public policy, Huelsman said. He noted that the discussion of free college, which is now endorsed by the bulk of Democratic presidential candidates, started in part with a local program in Kalamazoo furnished by super-rich anonymous donors. Now, student-debt forgiveness has the potential to follow the same pattern, he said.
“Freedom is something with which historically black institutions specifically, and black people more broadly have always known the incredible power of,” DeGregory, the professor at Kentucky State said.
“We know that the gift in and of itself will not undo systemic inequalities that are in large part driven by racism,” she added, “but we also know that a quality, culturally affirming education free of financial debt is an incredible and transformative gift.”