A Gift That Will Keep Giving

Robert F. Smith unquestionably captured the public’s imagination when, in one fell swoop, he pledged to wipe out the debt of nearly 400 students at Morehouse College.

The billionaire businessman’s recent commitment to pay off an estimated $40 million in college loans owed by the students at the historically black institution was remarkable and unconventional in philanthropic terms. Many larger gifts by donors have gone to universities to use toward scholarships offered to future students, and Smith himself donated $1.5 million to Morehouse in January to fund an endowed scholarship program. But gifts have rarely, if ever, gone directly to students, much less graduating students.

Smith's gesture was also notable for another reason. It placed the issue of the debt gap between black and white college graduates at the center of the public discourse about the corrosive role of student loan debt in perpetuating income inequality and stifling generational wealth. And just as importantly, it added a whole other layer to the conversation.

“Let’s make sure every class has the same opportunity going forward, because we are enough to take care of our own community,” Smith said at the Atlanta college’s commencement ceremony. “We are enough to ensure we have all of the opportunities of the American dream, and we will show it to each other through our actions and through our words and through our deeds.”

One didn’t need to read between the lines to hear what else Smith was saying -- or to understand the larger points he was making: loan debt among black college students is unacceptably high. According to a Brookings Institution report on the racial disparity in student loan debt, black undergraduates owe $7,400 more on average in loans than their white peers upon graduation. It's a problem policy makers and college administrators have not done enough to resolve, and it will keep getting worse if everyone simply waits for others, or for government, to fix it. Black business executives with the wherewithal and influence can step up and tackle it, Smith said.

“I think history will record this as a defining moment in philanthropy because of where we are in the state of higher education and the influence of debt as part of that equation in every community, and especially in the African American community,” said Raymond J. McGuire, a prominent black business leader and philanthropist, and vice chairman of Citigroup and chairman of its banking, capital markets and advisory group. “The implications are profound.”

And the cost of doing nothing has serious long-term consequences.

The Brookings Institution report notes that the $7,400 racial debt gap continues to widen in the years after graduation and eventually increases to $25,000.

“Differences in interest accrual and graduate school borrowing lead to black graduates holding nearly $53,000 in student loan debt four years after graduation -- almost twice as much as their white counterparts,” the report states.

These deep racial disparities in student debt loads are only recently being seriously discussed by policy makers and presidential candidates. But researchers in academia and at policy centers have paid more attention to the issue over the last few years. A 2016 analysis by the Washington Center for Equitable Growth found that student loan delinquencies are concentrated in black and Latinx communities. And two other studies cited in the Brookings report used "national survey data to show that black students hold substantially more debt by age 25 compared to their white counterparts, and that disparities are evident even after controlling for family income and wealth."

The authors of one of the studies, titled “Young, Black and (Still) in the Red: Parental Wealth, Race and Student Loan Debt,” noted that even when social and economic experiences were factored in to help explain racial disparities in debt, "the situation is more precarious for black youth, who are not protected by their parents’ wealth."

"This suggests that the increasing costs of higher education and corresponding rise in student loan debt are creating a new form of stratification for recent cohorts of young adults, and that student loan debt may be a new mechanism by which racial economic disparities are inherited across generations," they wrote.

McGuire, a three-time graduate of Harvard University -- he has an undergraduate degree as well as an M.B.A. and J.D. -- said college debt “contributes to intergenerational poverty” by saddling students and their parents with loan payments that must be paid off over decades, and by limiting students’ buying power, creditworthiness and even career choices after they graduate. Debt loads also influence students’ decisions about whether to pursue graduate degrees, which could lead to higher salaries and greater long-term wealth building.

“Education has always been at the forefront of the quest for opportunity, and the significance of this philanthropy highlights the importance of education to this demographic group -- and other demographic groups, for that matter,” McGuire said, “but it specifically highlights an unburdened path to educational opportunity and to their future success.”

Morehouse administrators couldn’t agree more.

“To be free from the financial burden of paying off student loans will be life-changing for the Class of 2019,” the college said in a statement.

College officials are still trying to calculate the total debt of the graduating class and devise a formal process for paying off the various types of loans the students hold.

“Our Office of Business and Finance, as well as our Office of Enrollment Management have been working diligently to calculate the student loan debt and other details of this gift,” the college said in the statement. “As soon as we have a final figure, we will share it with our new graduates so that they can continue on the path to careers and top-tier graduate schools student loan debt-free.”

McGuire speaks from experience. Like Smith, he’s a longtime philanthropist and supporter of educational causes; the beneficiaries include the De La Salle Academy and George Jackson Academy, private schools in New York City that serve children from low-income families, and the New York Public Library. He’s also a supporter of the arts as a benefactor of the Whitney Museum, the Studio Museum and the American Museum of Natural History.

Although widespread news coverage of Smith’s gift to the Morehouse graduates helped publicize the extent of the debt gap, the issue was not unknown to other black executives working behind the scenes to find ways to ease the financial pressures on black college students.

The Executive Leadership Council, a professional organization of top African American corporate executives in the U.S., is part of that effort. The organization is focused on increasing the numbers of black executives and developing and supporting their philanthropic endeavors, among other things.

Smith was a guest speaker and panelist at the ELC’s Black Economic Forum on Martha’s Vineyard last August, according to the organization, and he took part in a “fireside chat” centered on the theme of “Beyond One Generation -- Wealth, Power & Influence.” The wealthy black executives in attendance were encouraged to do more to strengthen black communities by sharing their knowledge, wealth, power and influence, according to the ELC.

Skip Spriggs, president and CEO of the ELC, declined to be interviewed, but the organization said in a prepared statement that its leaders and members were “thrilled with what appeared to be Robert Smith’s spontaneous gift” to the Morehouse grads and hoped the ELC forum played a small role in his decision.

“We would like to think that had a positive influence on Mr. Smith. But it’s clear that he has independently decided to be generous with his blessings,” the statement said.

Smith could not be reached for comment, but a representative who did not want to be identified said the pledge was a personal decision.

“It was an incredible expression of love,” the representative said, and a reflection of his belief in “the power of intellectual capital” and “the manifestation of the belief that he can make a difference.”

During his commencement speech, Smith told the graduates that they could make a difference, too.

“We all have the responsibility to liberate others so that they can become their best selves -- in human rights, the arts, business and in life,” he said. “The fact is, as the next generation of African American leaders, you won’t just be on the bus -- you must own it, drive it and pick up as many as you can carry along the way. More than the money we make, the awards, or recognition, or titles we earn, each of us will be measured by how much we contribute to the success of the people around us.”

The ELC has developed a strategic vision for 2019 centered on supporting black communities through business, education and economic development. The organization announced in January that it would give out $500,000 in scholarships this year to 60 black M.B.A. or M.A. students, the most financial aid awarded to the highest number of recipients in a given year in the ELC’s 33-year history. In March, it appointed a vice president and chief philanthropy officer, a newly created position.

These steps are in keeping with the ELC’s founding principles and history. The organization’s founders started “building a pipeline of black leaders from the classroom to the boardroom by providing scholarships and leadership development training” after efforts to save financially strapped Bishop College, a historically black college in Texas, failed.

Smith indicated in his commencement speech at Morehouse that he also wanted to build pipelines and use his gift as a conduit to free other students from debt in the future.

He called on the students “to make sure they pay this forward.” The newly minted graduates got to work the next day.

Robert James, the class salutatorian, said they started a “giant group text” to brainstorm ideas for how to use their newfound financial freedom to help other Morehouse students. They settled on plan to start a fund to help incoming freshmen pay for textbooks. Each member of the graduating class pledged $100 to the fund.

“We thought that was very tangible goal,” he said. “You don’t just take the check and say thank you” and go live your life, he said. “It was a call to action.”

Graduates who’ve already lined up jobs also agreed to ask their employers if they match employee donations to charitable causes. The graduates are also asking their parents to contribute to the fund and their employers to match those contributions.

“We wanted to make an effort to maximize our giving potential,” James said.

Although he had a full scholarship at Morehouse and didn't have to take out any loans, James said many of his classmates have more than a passing familiarity “with the student debt crisis going on in this country right now.” Some of his friends have loans in the six figures.

That’s why he and his classmates have fully embraced Smith’s notion of taking care of their own community by helping other students reduce their debt.

“We think it is up to those who have the capacity to do something about it,” James said. “We think those who have the ability to solve this problem, can. We don’t see any other clear way for it to be resolved.”

McGuire, the Citigroup executive who is friends with Smith, said Smith’s family background helps explain his philanthropic motivations. Smith grew up in a middle-class family with two parents with doctorate degrees, which is far different from the backgrounds of most students now entering college: first-generation college students, students of color, immigrants, working-class white students, most from families of modest means.

“If you look at Robert's history, education has been at the forefront of the dreams his family has had for him, and each of us has for ourselves, our families and our kids,” McGuire said.

McGuire, who was one of Morehouse's 10 inaugural members of the Martin Luther King Jr. International Board of Renaissance Leaders, a group of prominent black leaders that served as advisers to the college president, believes Smith’s pledge will have far-reaching implications.

“It will inspire others to be as generous and thoughtful as Robert has been,” McGuire said. “This has created a narrative in the philanthropic community -- a quite constructive narrative, by the way -- as we talk about the impact, not only directly on these kids and their families, but on their future families.

“Others are now thinking about their own philanthropy.”