When Robert Smith, a billionaire private-equity investor, took the stage at Morehouse College to give the commencement address in May, even the college president did not know what he was going to say. Smith was not an alumnus. He had never given to the college and in fact had only visited for the first time a year and half earlier to attend a gala there. But Smith connected with the students and the place. During the gala, he pledged to give $1 million for scholarships and later added more than $500,000 for a campus park.
On that commencement stage, Smith announced that he was going to pay off the student debt of every member of the class of 2019.
“Like everyone else there, I was surprised,” says Morehouse President David Thomas. “Then I’m overjoyed — happy for my students because, as someone who went to college as a first-generation student, I know what it means not to have to service that debt while you’re getting your career started.”
Smith’s $34 million gift — likely the first of its kind to pay off the student loans of an entire college class — helped spark a national conversation about student debt. Perhaps more important, Smith collaborated with the Morehouse staff and Fred Goldberg, a former IRS commissioner and counsel at the law firm Skadden Arps, to create a road map for how other donors and colleges can set up a similar fund to pay off student debt. This comes at a time when the student-debt crisis is gaining attention and other donors are making large gifts to scholarships for first-generation college students to help those young people afford higher education.
“It’s wonderful that, for this class, they got to have their debt paid off. By doing that, it highlighted the issue,” says Natalia Abrams, executive director of the advocacy group Student Debt Crisis. She says data show that African Americans are more affected by student- loan debt than other groups. “It really did target a group of people that need help the most,” she says.
The two gifts to Morehouse, $34 million to pay off debt and the earlier donation for scholarships and a park, and his other contributions were significant enough to rank him No. 35 on the Chronicle’s Philanthropy 50, the second time he has appeared on the list.
More Than Car Loans and Credit Cards
Student-loan debt now totals nearly $1.5 trillion — more than auto loans or credit-card debt. The average borrower owes about $30,000. For those in debt, it can alter everything from career trajectory to the ability to buy a home. Graduate school may be unaffordable. Some career tracks just won’t work. “Many of our students want to go into teaching, and teaching’s not a high-paid profession at the entry level. So some of them choose not to, simply because they’ve got to service the debt,” says Thomas.
Smith’s gift brought needed attention to the problem, but, Abrams says, it is no solution. “Even tons of billionaires are not going to solve this overall problem,” she says. “We have to look at larger structural change.”
Ambitious Solutions
When the gift was made, it received both praise and criticism. New York magazine, the New York Times, and others pointed out both its generosity and its failure to address systemic problems that created the debt crisis as well as the tax system that benefits the private-equity industry where Smith made his fortune.
“So no philanthropists should do anything about student debt unless they can solve the entire problem of student debt for everyone in the country?” Thomas says. “That just doesn’t make sense.”
He agrees that there are systemic issues to be addressed. This gift helped bring attention to the issues, and this kind of philanthropy can help fill the gaps until the larger problem is addressed. Smith was not available to speak with the Chronicle for this article.
Smith’s $34 million gift to Morehouse to pay off students’ loans is among the largest gifts ever contributed to a historically black college or university. That size gift would barely generate publicity if it were given to Harvard or Yale. (Thomas has two degrees from Yale and taught at Harvard.)
“No one has ever written an article that criticized a billionaire for giving eight and nine figures to any of those schools,” he says. Thomas questions where the critiques are that ask, “Why would you give money to a school where less than 20 percent of the students are Pell eligible? Why did you give to a school that was built on the backs of slaves?”
Tax Matters
Because this donation was the first of its kind, it was not easy to implement.
The Chronicle’s 20th annual ranking of America’s biggest donors was topped by Michael Bloomberg and followed by the hotel magnate Barron Hilton, then Eric Schmidt, the former Google CEO, and his wife, Wendy. The top five on the list each gave more than $1 billion to charity last year.
Staff from Morehouse’s financial aid and advancement offices coordinated with its lawyers, along with Smith’s representatives. They worked with the department of education and debt- service companies. The college has done its best to ensure that students will not be charged income tax on the amount of loans that were paid off. “We were sort of inventing things as we went along,” Thomas says.
The college has paid off some debts and is in the process of paying off the rest.
An Appeal to Small Donors
The framework Smith and Morehouse created to share with other donors and colleges has the potential to extend the reach of Smith’s gift.
“The philanthropy that has the greatest impact is the philanthropy that can scale,” says Thomas.
While it is not clear that another donor will step forward to pay off the debts of the next graduating class at Morehouse, Thomas says the institution has created a flexible fund that donors can contribute to either to target the debts of some students — like those who become teachers —— or to support scholarships. One donor has already contributed to the fund and others are interested, he says.
“Not everybody would have the capacity to do what Robert [Smith] did,” says Thomas. “But some have the capacity to do it in a more targeted way or to join others in doing it.”
