Billionaire’s $40M gift to Morehouse grads points way to student debt solution
Billionaire investor Robert Smith announced plans to erase the student loan debt balances for nearly 400 new Morehouse College graduates during his address at the historic black college’s 2019 commencement exercises over the weekend. The $40 million gift from the Vista Equity Partners CEO is one of the boldest private sector answers to the country’s ever-rising student loan debt problem, and in turn makes Smith a new spokesman on America’s higher education cost crisis.
The grant will give the new graduates, many of whom are from underserved backgrounds, a debt-free shot at achieving the American dream, empowering them to use their new capital for retirement, home purchases or small businesses. It also centers Smith as a new focal point on a fierce economic and political issue as the 2020 presidential elections draw near.
This is not the first time Smith has demonstrated his philanthropic commitment to higher education. Yet his gift to Morehouse College goes further, by targeting a specific demographic that is traditionally hardest hit by student loan debt.
In fact, African Americans have twice the student loan debt as their white peers, according to the Brookings Institution. Moreover, 85 percent hold at least $10,000 in loan debt, with 32 percent holding at least $40,000, according to the Urban Institute. This is higher than any other racial or ethnic demographic in America and contributes to the widening racial wealth divide.
Smith’s grant will allow these new grads to invest the money they would have otherwise spent on repayments back into the economy. With the country’s total student loan debt amounting to about $1.5 trillion, borrowers lose an average of $208,000 in lifetime wealth accumulation that could have come from retirement savings, investments or home purchases, according to studies from Washington, D.C.-based think tank Demos.
This additional wealth could play a key role in narrowing the racial wealth gap for African American families, who have $600,000 less in wealth-building assets compared to white families, according to the Economic Policy Institute.
As the data show, the debate surrounding the macroeconomic impact of rising college costs and student loan debt is not going away any time soon. Nearly every Democratic presidential candidate has discussed policy recommendations for student loan debt, including Sen. Elizabeth Warren, Sen. Bernie Sanders, and Sen. Kamala Harris. Sen. Sanders’s 2017 College for All Act presented a bold $47 billion proposal to make tuition free at America’s public colleges and universities, while Sen. Warren’s campaign issued a plan that would forgive up to $50,000 in student loan debt for households earning under $100,000.
However, few corporate leaders and billionaires have made such a public declaration like Smith. As an investor, it demonstrates he understands the uphill burden student loan borrowers face, the drain this debt has on the economy, and the role the private sector can play in fixing this issue. By stepping into the student loan debt debate with such a pronounced action at the Morehouse graduation, Smith suggests the private sector can be critical partners in fixing the country’s student loan debt problem.
One way is through philanthropy or corporate social responsibility efforts, as he demonstrated over the weekend. Another potential solution is a Public-Private Partnership model (PPP) that frames fixing student loan debt as an economic growth accelerator, similar to infrastructure development initiatives during the Industrial Revolution. This could mean companies making greater endowments into public universities to significantly limit education costs for students at public colleges and universities, as well as policymakers creating conditions that would incentivize these contributions.
While there will be much more debate to come on this issue, 400 lucky Morehouse College graduates can now spend more time building lives instead of worrying about their economic futures. Now it’s up to our country’s leaders to come together and find a solution that solves this economic policy crisis for more Americans.
Antonio White is founder and principal of Beyond Ideas Group, a public affairs and strategic events firm that elevates diversity and social responsibility impact efforts for business, tech, media and policy organizations. He is a former senior adviser at the U.S. Treasury Department, where he worked for two Treasury secretaries as an Obama administration appointee.