Billionaire investor and philanthropist Robert F. Smith stunned Morehouse College, students and the higher education world during his commencement speech in May when he announced plans to pay the student loan debt for the entire graduating class.
On Friday, the students learned how the debts will be paid.
The all male, liberal arts college of about 2,200 students near downtown Atlanta, will directly pay federal and private debt to loan providers that has been tracked by the U.S. Department of Education, Morehouse College President David A. Thomas said. Students must sign documents agreeing to the payment plan, he said.
Morehouse will also pay federal Parent PLUS loans taken out by parents for their children to attend the school. Those loans often exceed loans students must pay, Morehouse officals said. Two-thirds of the debt balances are held by parents, the college said.
Smith agreed to alleviate both, Thomas told reporters.
In all, more than 400 students and families will be eligible for the debt payments. Students and their families will not have to pay taxes on the loan payments, Thomas said.
“As of today, we think we have secured this in a way that prevents tax liability from falling on our students or their families,” Thomas said in a separate interview with The Atlanta Journal-Constitution.
Smith’s gift totals $34 million, the college said. While many donors have made larger contributions to other colleges, Smith’s commitment to paying student loan debt was unprecedented, many higher education experts said. Student loan debt has tripled since 2007 to current estimates of $1.5 trillion. U.S. Education Secretary Betsy DeVos has called the debt, which is greater than the nation’s auto loan debt, a “crisis.”
Student loan debt is a greater challenge at Morehouse and other historically black colleges and universities since many students come from less affluent families and borrow more money to attend. Morehouse is the nation’s sole HBCU with the goal of educating African American men. The average student loan debt for Morehouse graduates is between $35,000 to $40,000, which is more than the national average of about $29,000. Some Morehouse graduates have said their loan debt exceeded $100,000.
Qualon Bobbitt, 23, who graduated in May with $17,000 in debt, said the college sent him information last week about his loans and asked if any changes were necessary. The information was correct and he agreed to the payment plan, Bobbitt said.
Some classmates did not see the emails from the college explaining the debt repayment process. The college sent messages to the Morehouse email accounts of some students, Bobbitt said he heard from classmates. College officials said they’ve tried to contact students through email and telephone.
Bobbitt, who is preparing to go to law school in 2020, said Smith’s gift has given him time to pursue his plan to create a nonprofit to stop sexual violence. Bobbitt’s only concern is “it doesn’t hit the underlying issue of how much it costs to attend college.”
Thomas said the college spent months working out the details with tax advisors and others. The college is encouraging the graduates to seek guidance from their own tax consultants.
Kemberley Washington, a former IRS agent who owns a CPA firm in New Orleans, also said the former students should seek advice.
“Generally, when student loan debt is canceled or forgiven, it results in taxable income for the recipient. However, if a recipient can prove to be insolvent, which means their personal liabilities are more than assets, the IRS would not require the recipient to include the amount in income,” she said. “There are other exceptions to the rule, therefore it would be advisable for students and parents to speak to a tax professional.”
Morehouse created a Student Success Program to track how Smith’s gift has helped students and to explore the issue of student loan debt.
“This is a liberation gift,” said Thomas, who dreamed of attending Morehouse but couldn’t afford it. “This allows students to pursue their dreams as soon as they would like to and in whatever fields they would like to.”
Since Smith announced his gift, others have contacted Morehouse looking for ways to donate, officials said. Morehouse is accepting donations to the Student Success Program that would be customized to the donor’s wishes to pay loans for current students. Morehouse is working on details about how it would work, but Thomas said the plan would likely entail helping students pursuing careers in fields that typically have lower starting salaries, such as teaching or working at a nonprofit.
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