Patterico's Pontifications

5/20/2019

Morehouse College: Billionaire Will Pay Off Class of 2019 Student Loans

Filed under: General — Dana @ 9:07 am



[guest post by Dana]

I realize it’s Monday morning and that’s a time for hard news posting, but when gracious generosity takes center stage, it’s a good reminder that in the midst of a hurly-burly world, the act of helping others is still very much in play:

Morehouse College seniors got a surprise Sunday when billionaire investor Robert F. Smith announced during his commencement speech that he would pay off the student loan debt for the historically black college’s graduating class.

“On behalf of the eight generations of my family who have been in this country, we’re going to put a little fuel in your bus,” he told the newly minted graduates in Atlanta before saying his family was creating a grant to eliminate their student loans.
The announcement was met with a standing ovation and chants of “MVP!”

“Now, I know my class will make sure they pay this forward,” he continued. “I want my class to look at these (alumni) — these beautiful Morehouse brothers — and let’s make sure every class has the same opportunity going forward because we are enough to take care of our own community. We are enough to ensure we have all the opportunities of the American dream.”

The gift involves 396 students’ loans and is expected to cost approximately $40 million.

Student reaction was about as you would expect:

“We’re looking at each other like, ‘Is he being serious?’ That’s a lot of money,” salutatorian Robert James, 21, said.

Jonathan Epps, 22, said Sunday afternoon he still hadn’t fully grasped the magnitude of the “tremendous blessing,” which he called the kindest, most generous thing he’d ever witnessed.

“It’ll sink in as the years go on. I know that for a fact,” he said. “I still don’t really have words. … It makes a great day just that much better.”

Epps said he has about $35,000 in student loan debt that his parents in Pleasanton, California, had pledged to help him pay off. He couldn’t wait to break the news to them, he said.

A classmate, Elijah Nesly Dormeus, is the first of nine kids to graduate college. His mother made many sacrifices working minimum-wage jobs to provide for him and his eight siblings after Dormeus’ father died when he was 5. In addition to the 22-year-old New Yorker’s own $90,000 debt, he said his mother took out a loan to help get him through school.”All her serving, all her giving was not in vain,” Dormeus said when asked what Smith’s gift meant to his family.

Art major Charles Releford III also has numerous siblings, and his mother, Tonga, wants them all to be part of the “Spelhouse family,” meaning they hope to attend Morehouse or the nearby all-women’s Spelman College.

“For me, the parent of four, it opened up so many opportunities for the younger siblings of the Releford family,” she said.
Charles Releford said he’d accumulated about $70,000 in loan debt during his time at Morehouse, and though the aspiring illustrator doesn’t have a job lined up, he was already thinking about how he would pay back the money.

After Smith’s announcement, though, “I’m really excited to see where my life can go now because all different avenues are open now so I’m not held down. There’s no burden, student loans — I’m debt-free,” Releford said.

Here is some background on Smith:

Smith is the founder, chairman and CEO of Vista Equity Partners, an investment firm with offices in several cities including San Francisco, New York City and Austin. According to its website, Vista has $46 billion in capital committed to companies specializing in data, software and technology. According to Forbes, Vista is one of the best-performing private equity firms, with annualized returns of 22% since it was founded.

Prior to founding Vista, Smith worked in tech investment banking with Goldman Sachs…

He is worth $5 billion… 355th on Forbes’ Billionaires 2019 list…the nation’s wealthiest African American.

In 2016, Smith pledged $50 million to his alma mater Cornell University toward the school’s college of engineering.

Smith is also the only African American to sign the Giving Pledge, an initiative created by billionaires Bill and Melinda Gates and Warren Buffett aimed at urging the world’s billionaires to donate their wealth toward charitable causes.

Smith’s mission:

I will never forget that my path was paved by my parents, grandparents and generations of African-Americans whose names I will never know. Their struggles, their courage, and their progress allowed me to strive and achieve. My story would only be possible in America, and it is incumbent on all of us to pay this inheritance forward.

(Note: I personally chose to focus on the generosity of one individual in this post rather than examine the ramifications of an art major accumulating $70,000 in student debt and the problem of student loan debt in general. Please feel free to discuss any aspect of the report.)

(Cross-posted at The Jury Talks Back.)

–Dana

34 Responses to “Morehouse College: Billionaire Will Pay Off Class of 2019 Student Loans”

  1. Good morning.

    Dana (779465)

  2. The thing about the ‘$$$$$ in debt for a (name personal pet peeve useless degree)’ narrative is the it tends to lay the blame on the students. OK, they COULD have been smarter. But let’s face facts; society has been telling young people that The Way To Get Ahead is to get a degree since I went through High School in the mid 1970’s. It’s kinda ground in deep.

    Something to keep in mind.

    C. S. P. Schofield (f7316d)

  3. I agree, C.S.P. Schofield. Clearly college is not for everyone, and any number of vocations can provide a very good living. However, there seems to be a class stigma attached to the vocational route that educators studiously avoided for a lot of years. During the 70’s, vocational classes (woodshop, auto mechanics, home ec, etc.) were a given. Over the years, they became frowned upon as the push for college for everyone came into popularity. But instead of widening the opportunities for students, in reality it narrowed the opportunities because not every student was college material. Some are just more suited to a different kind of education and career.

    As Mike Rowe points out:

    In a very general way, our society has fallen out of love with the skilled trades. Part of the problem is a myriad of myths and misperceptions that surround the jobs themselves, but the biggest cause is our stubborn belief that a four-year degree is the best path for the most people. This cookie-cutter approach to education has pushed an entire generation away from millions of good jobs, while driving the cost of college through the roof. The result is a skills gap that gets wider every year, and a student loan crisis unlike anything we’ve ever seen.

    Dana (779465)

  4. Part of the “silly major” syndrome has to be put on the backs of the parents.
    When I was in my senior year of college, I decided to take a beginning course in Classical Greek, because…it interested me. (My major was English, focused on British literature, and supplemented by a heavy dose of History courses). My mother, in her best She Who Must Be Obeyed mode, ordered me to drop it and take something else, because classical Greek was useless for law school . (Obviously, she never met nk.)

    I can’t imagine what she would have done if I had enrolled in some truly useless major.

    kishnevi (0c10d1)

  5. Sometimes the skilled trades are frowned upon, particularly in blue-r urban markets is because of the perception you need “connections” to 1. be sponsored in one the locals’ training institute’s and 2. “connected” to be anything beyond an itinerant journeyman. Add to that the Spanish surname domination of the middle tier trades, and a recent graduate might look askance from the vocational trades

    urbanleftbehind (d28da6)

  6. I would like to be able to read this: ‘Playing Catch-Up in the Game of Life.’ Millennials Approach Middle Age in Crisis, but it’s behind the paywall. However, Nick Gillespie points again to monumental student debt:

    “32 years old. She is a renter who is single and earns $75,000 a year. She also owes $102,000 in student loans and $10,000 in credit-card debt.”

    $75,000 a year=$6,250 a month. Assume 33 percent in taxes, that comes out to $4,187 take home per month. Student loans @5 percent/10 year repay= $1,000. That leaves $3,187 for rent, food, etc. Not great, but doable w roommates. Why so much in student loans? 2/x

    Apparently, she is a compliance officer (which, according to this, requires a BA at a minimum). Did she do two years at a community college to get her Gen Ed out of the way for cheap, and then transfer to a 4-year institution or straight to a 4-year? If she went to school out of high school at 18, then reasonably, she’s been out of school for almost 10 years and still has more than $100k in loans to pay off.

    Dana (779465)

  7. I personally chose to focus on the generosity of one individual in this post

    Me too. A very beu geste on the part of Mr. Smith.

    nk (dbc370)

  8. Where does she live? Even in Miami, which has fairly high rents, $3k a month should be enough to cover rent for a one bedroom apartment, food, clothes, and monthly payment for a respectable car without roommates… and leave a little left over for the fun things in life.

    kishnevi (0c10d1)

  9. She lives in Chicago:

    “If I can’t afford a home, I definitely can’t afford kids,” said Joy Brown, 32 years old. She is a renter who is single and earns $75,000 a year. She also owes $102,000 in student loans and $10,000 in credit-card debt.

    “Myself and a lot of my peers still feel like we’re playing catch-up in the game of life,” said Ms. Brown, a compliance officer for the city of Chicago.

    And works for the city. One assumes her employment also includes health insurance and retirement as well.

    Dana (779465)

  10. So much for… ‘reparations.’
    ________

    Endlessly amusing reading ‘conservatives’ questioning the quest/rationale/need/desire for a higher education to compete in the modern world… and “make America great again.”

    “Well, the world needs ditch diggers, too.” – Judge Smails,[Ted Knight]’Caddyshack’ 1980

    DCSCA (797bc0)

  11. Thats a thoughtful and generous gift.

    I agree with Mike Rowe though. You can make good money in the trades and not have student loans.

    As more people go to college, less people know how to work with their hands.
    The wage people who can work with their hands can command goes up.

    This area produces a huge amount of over educated electricians, plumbers, finish carpenters who started their trade at 22 burdened with debt rather than at 18 debt free. Luckily for them the wealth in the area can accommodate them

    steveg (354706)

  12. It will be interesting to do a future follow-up on the Morehouse students in this graduating class a decade or from now and see how having their student loan debt has impacted their lives, compared to the classes coming immediately before or after them at the college (i.e. — does not having those payments allow them to spent money on other things to help them moving forward in their lives, or does it simply allow debt to be accrued someplace else that turns into a long-term financial anchor?)

    John (c7bcb1)

  13. #6 – Here is the WSJ article you referenced, without the paywall:

    https://www.msn.com/en-us/money/personalfinance/playing-catch-up-in-the-game-of-life-millennials-approach-middle-age-in-crisis/

    Alycia Marquardt (fbadd4)

  14. Hope the guy and gal in Chicago had fun in college and law school. I bet they had their own apartment, went to school full time, etc. How in holy hell does anyone think they are going to pay back $377,000?? I want to hear from the schools why they are lending this kind of money.

    Patricia (3363ec)

  15. @15. Reaganomics.

    DCSCA (797bc0)

  16. 15. I think the feds run the student loan racket.

    tmm (3d89bc)

  17. How in holy hell does anyone think they are going to pay back $377,000??

    If they’re successful as lawyers, that’s a good investment.

    Dave (1bb933)

  18. It’s a serious problem, in my mind, that we’ve erected a system where postsecondary education comes with tens, or hundreds, of thousands of dollars in loans for most people. It will be a long-term drag on economic growth, if nothing else, and it will have tragic effects on the lives of a lot of these students.

    This man’s charity shouldn’t have been necessary, but he deserves deep and abiding thanks for it.

    aphrael (3f0569)

  19. Patricia — the schools aren’t lending it.

    The schools are *charging* it, and the students are borrowing to pay it.

    aphrael (3f0569)

  20. The are more cost effective choices but people don’t think of college as education anymore. They think of it as prestige or a special social club, and that is what they are willing to pay for.

    DRJ (15874d)

  21. The education racket needs to collapse. They don’t give anywhere near in value to the amount they charge.

    NJRob (4d595c)

  22. The education racket needs to collapse. They don’t give anywhere near in value to the amount they charge.

    Trump’s Bureau of Labor Statistics disagrees.

    Average weekly earnings with a high-school diploma and no college: $730/week
    Average weekly earnings with a bachelor’s degree: $1198/week

    The unemployment rate of bachelor’s degree holders is almost half that of high-school grads with no college, too.

    ICYMI: UC Irvine ranked #1 best value among public research universities by Forbes magazine.

    Fiat lux!

    Dave (1bb933)

  23. Average weekly earnings with a high-school diploma and no college: $730/week
    Average weekly earnings with a bachelor’s degree: $1198/week

    Naturally. People strong enough to endure four years of college would be strong enough to flourish in the less toxic environment of real life.

    nk (dbc370)


  24. How in holy hell does anyone think they are going to pay back $377,000??

    If they’re successful as lawyers, that’s a good investment.

    Yeah, but you cannot clear it in BK, so if you aren’t successful as a lawyer, you’ll be poor all your life.

    Kevin M (21ca15)

  25. Is he planning on paying the gift/income taxes on this?

    Kevin M (21ca15)

  26. Sigh. He’ll set up a tax-free private foundation. This is clearly “educational”. He probably already has one. Or several. He won’t pay gift tax. He’ll take a tax deduction. Rich people don’t get rich by not learning how not to pay taxes.

    nk (dbc370)

  27. $75,000 a year=$6,250 a month. Assume 33 percent in taxes, that comes out to $4,187 take home per month. Student loans @5 percent/10 year repay= $1,000. That leaves $3,187 for rent, food, etc. Not great, but doable w roommates. Why so much in student loans? 2/x

    33% in taxes seems high. She pays about 8% in payroll taxes and her federal tax burden is about 14% with standard deductions. In California, she’d pay about 5% in state income taxes. Or about 27%. Maybe 26% if she itemizes. In Texas she’d pay nothing, for a total of 22% and she would not itemize.

    Now, there’s sales tax, but most of her income is going to untaxed things like rent, food and paying the government back. Maybe another 2% in sales taxes. This gives her another $600 a month, which makes things easier.

    Kevin M (21ca15)

  28. Sigh. He’ll set up a tax-free private foundation. This is clearly “educational”. He probably already has one. Or several. He won’t pay gift tax. He’ll take a tax deduction. Rich people don’t get rich by not learning how not to pay taxes.

    But what about the taxes charged to the students? I think this would be considered taxable income to the students by the IRS.

    Kishnevi (c81531)

  29. That was my point. Either he gives “gifts” or someone pays an income tax. He might give enough to defray it instead. I don’t think “retroactive scholarship” will cut it.

    Kevin M (21ca15)

  30. When I got out of college, I had about a year’s income in student loans, at a low fixed rate and inflation about about 15%. Needless to say I paid it back as slowly as possible, but it was doable. The interest was also tax deductible at the time.

    These days, with tuition at a top-flight school pushing a quarter million, plus living expenses, if you get a degree in something useful to society like engineering, you are going to have 3 year’s income to pay back. Maybe a lawyer would have a big salary to pay it back with, but the number of baby lawyers that get jobs at the white-shoe law firms is tiny.

    Kevin M (21ca15)

  31. 29. Kishnevi (c81531) — 5/21/2019 @ 6:01 pm

    I think this would be considered taxable income to the students by the IRS.

    No, it isn’t. They didn’t do anything in exchange. It’s a gift.

    Now if they won it playing Jeopardy. or in the lottery, or won it in a contest Robert F. Smith ran, it would be taxable income, but that’s almost a special provison of law applying to prizes.

    Sammy Finkelman (db7fea)

  32. It depends on a number of factors but Smith called it a grant, not a direct gift to each student. In that case:

    If Smith gives the money as a grant, Morehouse could then pay off the student loans and issue a cancellation of debt to students, said Barron Barnes, CPA at Barnes, Merritt & Barnes, LLC in Sandy Springs. The students would then receive a 1099-C for the debt cancellation, which could then be considered income and subject to taxes.

    But that approach leaves some significant questions.

    “Would Morehouse be able to legally pay off the debt that is under the Social Security number of a student? I think that would be a violation of what they are allowed to do as an institution with a 501(c)3 tax-exempt status,” Barnes said.

    Kemberley Washington, a former IRS agent who owns her firm in New Orleans, also mentioned the possibility of a 1099-C form to cancel the debt. She believes Smith and Morehouse will find a different approach.

    DRJ (15874d)

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