Billionaire Robert F. Smith pledges to pay Morehouse 2019 grads’ student loans

https://www.cnn.com/2019/05/19/us/morehouse-robert-smith-student-loans-trnd/index.html

by Toyentrepreneur • 7 years ago

144 160 7 years ago

cnn.com

yanarchy• 7 years ago

That's incredible.

ourmandave• 7 years ago

Anyone know the odds of winning Free Tuition From a Billionaire vs Lotto scratch tickets?

Also you know there's gotta be a guy that buckled down and graduated last year instead of this year that's kicking himself.

SapporoChris• 7 years ago

In addition, some parents are probably reflecting on their choice to pay for everything. I'm not as concerned about the very wealthy for whom the cost of sending their child(ren) to school was a minor expense, I'm more concerned about the parents that made extreme sacrifices.

And then there's the student that juggled work and school to minimize or eliminate any student loans.

The generosity of Robert F. Smith is admirable. I'm unsure how to reconcile it with some students paying vs others getting a free ride.

lowercased2• 7 years ago

i'd read he was expecting people to 'pay it forward'. it may be consistent of him to give some sort of one-time payment to the "debt-free" folks in order for them to be equally able to 'pay it forward'.

mikeash8• 7 years ago

Those people are no worse off today than they were yesterday.

protomyth• 7 years ago

Life is full of serendipity and chaos. Yep, some folks are going to get a massive break and some are going to be mad because they scraped by and are not going get a benefit. Neither diminishes the great generosity of a man who should be praised. Envy will destroy your soul and frankly is the most deadly of emotions. Celebrate the good fortune of others and remember you are no worse off then you were yesterday. Nothing has been lost and you were caused no harm.

scarface7414• 7 years ago

I'm more concerned about the parents that made extreme sacrifices.

Those parents should have insisted that there children go to a much cheaper school....

ralusek• 7 years ago

Turns out "to each according to their need" is harder than it sounds.

qzw2• 7 years ago

Or how about the student who’s taking an extra semester to finish a double major? Anyone who missed out on this deal must be feeling pretty sad. This is why we can’t only rely on philanthropy to solve systemic problems.

mc32• 7 years ago

It’s true. But those are the breaks. Don’t dwell on it and move on; life awaits.

qzw2• 7 years ago

While I’m happy for the students and appreciate the “pay it forward” message, I am just shocked that the collective debt for 396 students is $40 million. That’s $100k per student on average, just for a bachelor’s degree. How could this be sustainable?

austenallred3• 7 years ago

It’s not

maxerickson2• 7 years ago

Is that because the cost for a useful vocational education should be closer to $30,000?

Or are you saying that people with millions of dollars of productivity ahead of them can't afford $100,000?

scarface7414• 7 years ago

It’s what happens when you think you need to go to a private college....

They could go to a public 4 year college cheaper.

thereare5lights2• 7 years ago

4 years at a UC is still 80-100k

addicted2• 7 years ago

Are you a boomer? Because you seem to think a decent public college is significantly less than 25k/year.

Anechoic• 7 years ago

Perhaps things changed in the 20 years since I graduated, but based on the college aid packages offered to me, it was less expensive for me to go to MIT than it was to go to UMass Amherst.

rgbrenner• 7 years ago

It says the gift will be "up to" $40m. We don't know the actual amount of collective debt. It could be more or less.

WesternStar• 7 years ago

A good estimate based on Dept of Ed statistics is around 400*26k or a little over 10 million. He might be able to pay for 4 classes in fact.

joelrunyon3• 7 years ago

Agreed -

This is a great gesture, but I wonder if it will just encourage bad/gouging behavior by colleges.

Why the hell does education need to be that expensive? Maybe for a doctor, sure - but for teachers who are going to come out making 30k - it seems that education prices should be tied to future earning potential somehow.

platform2• 7 years ago

Surely, just cancelling debt will always increase cost of service (I cannot come up with a historical example where this is not the case, but happy to be corrected).

However, this gesture is not a policy, and just a really nice gift and expression of altruism.

Also... since you mentioned it, I cannot believe how little teachers are making, including their pension guarantees (in US and many other countries) -- for the effort that many of them put in -- this is just a disgrace.

I wish, there would be a way for exchange safety/tenure guarantees for significant pay increase (eg at least double). And let the teachers make that choice.

darawk• 7 years ago

Maybe for a doctor, sure - but for teachers who are going to come out making 30k - it seems that education prices should be tied to future earning potential somehow.

The real problem is that people are completely price insensitive when it comes to their education. I would prefer us to move to an equity model, personally. One where education is free, but the university takes a small cut of your future earnings. This way everyone's incentives are properly aligned.

JackFr3• 7 years ago

That number might possibly grossed up to include the gift tax he's got to pay. That being said it's still an astonishing amount of debt.

hanoz• 7 years ago

This is the natural consequence of unrestrained usury in a market for things everyone needs one of. See also - housing. Only the bankers benefit in the end.

supernova87a4• 7 years ago

Not to begrudge anyone's generosity, but if my parents / I had worked to save for my tuition completely and I got no benefit in a scenario like this, I think I'd feel a little frustrated. Of course you'd be lucky to have had that position in life, but frustrated nonetheless. Why didn't I just take out loans like everyone else?

scarface7414• 7 years ago

As you said, you got the benefit of having parents that are able to afford to send you to college debt free...

jimmydddd• 7 years ago

Some of the students who took loans might also have parents who are able to afford it, but the students decided to take loans instead.

supernova87a4• 7 years ago

Maybe you think that the only people who save and pay for their kids' college are rich people. Probably that they can "afford" not to be the beneficiaries of generosity like this as well.

Far more common is for middle class (and immigrants) to be in this situation, not even to mention the 2-shift-a-day poor parents who paid outright to stay out of debt, worked overtime, scrimped, and planned ahead. They get nothing. I'm sure they can afford not getting any gift...

As I said, I don't begrudge a generous benefactor's actions that help people. It's his choice.

It would be a wholly different matter if government took this approach. In that case, you'd better be dammed sure that someone else getting something and you nothing, isn't going to remain at "be grateful for what you have".

Cf. that company experiment a few years ago (or think through if it applied at your job) that everyone got paid the same. You're probably not so eager in that case.

gridlockd2• 7 years ago

I would go one step further and say if you don't have a major loan these days, you're a sucker. Get a loan at low interest, buy up assets, get additional loans on those assets as they appreciate.

That's basically the basis of this whole "economic boom". You can rely on the Fed being unable to raise interest rates, or this house of cards will collapse and everyone will need another bailout.

The Fed keeps talking about low inflation while asset prices have exploded on their watch, it's hilarious.

smudgymcscmudge• 7 years ago

Point me to these assets that are guaranteed to go up. I’ll force my kids to get loans and I’ll invest in these instead.

hatmatrix• 7 years ago

There are also additional scenarios of frustration like ambitiously graduating a semester early, or failing to graduate with this class on account of missing credits. In the latter case you might have consoled yourself of the lost wages for a semester, and then you hear this happens...

RobLach• 7 years ago

You believe your parents or you would have worked harder than the parents of those students or those students; who have debt?

LanceH• 7 years ago

Exactly. One family takes a loan and a vacation every year, the other works over holiday...

mikeash8• 7 years ago

It sure sounds to me like you’re begrudging this generosity. Be grateful for what you have. Don’t be resentful for what others get, it only hurts you.

rdl• 7 years ago

I'd be a lot sadder if I'd scraped and taken loans and graduated the previous year from that school with a lot of debt. Even worse if you rushed through and graduated early or something (maybe to save money?).

mlevental• 7 years ago

other people getting lucky certainly brings out the worst in people

https://www.youtube.com/watch?v=cNo_Hhm5r8o

siruncledrew• 7 years ago

What percentage of people legitimately make financial decisions on the assumption a rich benefactor is going to cover them in the future?

This is the benefit of being in the right place at the right time. I'm sure people would be salty to not this windfall, but who knows maybe they will be lucky somewhere else.

MisterBastahrd• 7 years ago

Frustrated?

In this situation, YOU got a free education regardless.

I paid every freaking dime for my education out of pocket by sacrificing my nights and weekends during college. For plenty of people, college was a time where they made a ton of life-long friends. For me? College was a time where I spent half my time on campus passed out in the student union or library trying to get a bit of a nap between classes so that I could work an 8-6 schedule at night.

analog31• 7 years ago

The idea that nobody should get a goody if I can't get a goody, is the beginning of the race to the bottom.

ALittleLight• 7 years ago

Maybe - but you should also recognize that if you made sacrifices and spent a lot of money on something it would be annoying to discover that if you had made a less fiscally responsible choice it would have wound up working much better for you.

refurb• 7 years ago

Does this also apply to the common complaints against the 1%?

Just be happy that they have a ton of money even though you don’t?

throw201020102• 7 years ago

I think GP has a point that needs to be addressed if we ever want to do a debt forgiveness on a large scale without alienating a bunch of hard working people. It's not about keeping people from getting goodies, it's about rewarding responsible behavior.

Imagine two students, Andy and Brady. Andy decided that it would be best to get good grades, so he took out more loans and worked less. Andy had more time to study so he got mostly A grades. Brady decided it would be best to get graduate debt free, so he worked long hours instead of taking more loans. Brady had less time to study so he got more B grades. At the typical US university, you might be able to call their outcomes balanced- Andy can maybe get a better job because he got better grades, but has to pay off more debt. Brady won't get quite as good of a job because of his B grades, but gets to start saving for retirement faster because he is debt free.

But then some billionaire (call him Robert Smith, if we're trying to come up with the most generic name ever) comes and pays off Andy's debt. Now instead of a balanced outcome Andy is debt free and has a better job. Which is great for Andy, so I'm not saying the billionaire should't pay off his debt. But you have to think that Brady is probably kicking himself right now for not making a different set of choices. He's now behind in the race, and being behind sticks with you for a long time when it comes to careers.

If we could find a solution that kept Brady from feeling bad, but still gave Andy his goodies, then I'm sure that most people would agree that is a good outcome. An easy one that comes to mind is instead of saying, "I'm paying off all your student loan debt," Smith could say, "I'm giving you each $100k." That way Andy and Brady both get goodies, and Andy doesn't have crippling debt any more. Brady also doesn't kick himself for working hard during college because he now has a nice sum of money to do something responsible with (invest, save for retirement, down payment on a house, etc.).

hugh4life• 7 years ago

Looks like an opportunity for a longitudinal study. Compare life outcomes of this class vs classes that come before and after.

https://en.wikipedia.org/wiki/Longitudinal_study ' https://www.ssc.wisc.edu/wlsresearch/ - The Wisconsin Longitudinal Study (WLS) is a long-term study of a random sample of 10,317 men and women who graduated from Wisconsin high schools in 1957. The WLS provides an opportunity to study the life course, intergenerational transfers and relationships, family functioning, physical and mental health and well-being, and morbidity and mortality from late adolescence through 2011. WLS data also cover social background, youthful aspirations, schooling, military service, labor market experiences, family characteristics and events, social participation, psychological characteristics and retirement.

killjoywashere• 7 years ago

For those shedding a tear for the kids and families who worked hard to cover their bills ... I assure you, this leavening of a playing field is relatively minor in the scheme of setbacks people face in a career. And I say that having just finished paying my student loans at the tender age of 43. Those who suddenly find themselves with no debt may in fact end up worse off because their razor-sharp, college-educated judgement, finely honed by the whetstones of education and capitalism, just got blunted. We've yet to see how this experiment of Mr. Smith's plays out.

season8sucked2• 7 years ago

I paid my debt off a year out of uni, and if anything I’d say the lifted burden has sharpened my ability to think.

addicted2• 7 years ago

This is the issue with all the discussions about loan jubilee.

The people who busted their asses to do things the right way are the ones who get shafted.

The better approach is to just give out cash to all grads. How do you account for people who are richer vs those who are poorer benefitting similarly? Simple. Progressive income taxes, wealth taxes, and inheritance taxes. Keep everything else blind to income/wealth.

mikeash8• 7 years ago

Graduating debt-free is a curious definition of “get shafted.”

BurningFrog2• 7 years ago

This piece tries to explain how conservatives think about fairness. Including making sense of the Tea Party cry “Keep your government hands off my Medicare!”.

It will make you understand this thought, if perhaps not agree with it.

https://www.theatlantic.com/ideas/archive/2019/04/why-conser...

logicchains• 7 years ago

Simple. Progressive income taxes, wealth taxes, and inheritance taxes.

Your argument that "The people who busted their asses to do things the right way are the ones who get shafted" could also be applied to progressive income taxes: why should the student who busted their ass through college to get good grades and a well-paying job upon graduation pay more tax to support the D-student who drank their way through college and bullied people who cared about intellectual things?

mikeash8• 7 years ago

And thus we see how the wealthy are able to control our society.

A rich man performs an act of generosity to wipe out the student debt of an entire college class, and you complain. What do you complain about?

Do you complain about how students are being burdened with massive debts before they even begin their careers?

Do you complain that university education is becoming ever more necessary while simultaneously becoming ever more unaffordable?

Do you complain that a skilled chemical engineer gave up his career and turned to moving little green pieces of paper around to make his fortune, because society rewards certain types of paper pushing orders of magnitude more than it rewards inventiveness, skill, and hard work?

Do you complain that the billionaire who made this gift pays a lower tax rate on his income than these students will pay on their part of the gift?

Do you complain that, while a few hundred graduates got an incredible gift, a million other students around the country will graduate this spring with a huge amount of debt and no billionaire to pay it off for them?

No, you complain about the fact that some of these students won't benefit from this gift because they were fortunate enough not to have any debt to pay off. Never mind the systematic problems that led to this situation, never mind that a few hundred people got an incredible gift and the only person who lost anything was a billionaire giving up a negligible fraction of his wealth. The important thing is that some of the peasants are getting more than the others, and they must be destroyed!

sabujp• 7 years ago

i was following you until you started talking about destroying peasants

p1necone3• 7 years ago

I think that bit was tongue in cheek.

lefstathiou• 7 years ago

Burn them! Burn them at the stakes!!! ;)

Despegar• 7 years ago

This isn't very complicated to solve: redistribute more of the wealth. MMTers say that isn't even necessary, but it is to fix inequality.

joelrunyon3• 7 years ago

Question I've never seen anyone actually answer: Why is inequality inherently a bad thing if the "floor" for everyone is continually being raised?

p1necone3• 7 years ago

I'm curious how conservatives would feel about a hefty inheritance tax. The person who worked for the money is dead now so shouldn't care, and the person receiving the money didn't work for it, so it kinda sidesteps the typical argument.

JackFr3• 7 years ago

The people most fixated on redistributing wealth seem to often have only a glancing familiarity with how it is produced.

Great wealth isn't accumulated by stealing from the working class, by and large it is accumulated by making the working class better off.

cortesoft• 7 years ago

I don’t think people are complaining so much as I think they are pointing out why charity is not a good way to solve these sorts of social problems.

Charity is random and arbitrary, and does not fairly address problems by actual need. Yet, many people still argue that charity should be our social safety net, and we don’t need to fund programs that help people.

JackFr3• 7 years ago

Do you complain that a skilled chemical engineer gave up his career and turned to moving little green pieces of paper around to make his fortune, because society rewards certain types of paper pushing orders of magnitude more than it rewards inventiveness, skill, and hard work?

The 'moving little green pieces of paper around' is called allocating capital, and it's as important a driver of productivity in the economy as chemical engineering. He was highly rewarded because he used capital effectively.

mikeash8• 7 years ago

If it’s “as important” then why does it carry orders of magnitude more rewards?

pbreit4• 7 years ago

I don't totally understand the idea of forgiving student debt. Isn't it fairly healthy to take out a loan to invest in yourself and then pay it back?

toasterlovin4• 7 years ago

It should be.

The things that fucks this whole calculation up is that student loans in the U.S. can't be gotten out of via personal bankruptcy, so, in reality, a lot of dumb young people rack up way more student loan debt than they really should. And the people lending them that money have no incentive to think about the student's ability to pay the loan back, due to the bankruptcy exemption. Oh, right, and the loans are often guaranteed by the government, so there's yet another thing which screws up the incentives.

rayiner2• 7 years ago

The private student loan market is almost non-existent now. The “people lending them that money” is the federal government. And the combination of no credit checks on the front end and non dischargability on the back-end is a deliberate policy to make loans universally available.

pbreit4• 7 years ago

But none of this really addresses my original post.

door52• 7 years ago

That investment shouldn't be made by individuals, it should be made by society as a whole, ie by increasing taxes so tuition is free. The burden of student debt is not shared equally or fairly.

firstplacelast• 7 years ago

Even for people that study well-paying subjects and do well in school and for whom a 100k loan balance is worthwhile, it is still better to leave school with no debt.

Fun anecdote, an ex of mine was admitted to Mayo Clinic Medical School back when we were seniors in college. I don't remember all the details completely well, but they put a huge emphasis on getting students through med school debt-free so they could focus on being the best physicians possible in any area of medicine and for however long it took. My ex ended up with a full-ride with their help and it made it much easier for her to focus on being the best physician possible, less stress/able to buy a small home while in med school/take up additional study opportunities/trips/and again much less general stress (we are still friends 14 years later).

It sucks that us Americans are so boot-strapped oriented, but ah-well it makes them easier to exploit.

hbosch• 7 years ago

Should we be loaning out $100k at 5% interest to teenagers, without making kids pay it down for 4 years, and not being able to discharge it in bankruptcy?

Would a bank approve an 18 year old high school grad for a $100k mortgage at the same rates? Say, $0 down, 5% interest, no mortgage payments for 4 years?

Why can a high school grad get the first one and not the other? Is an 18 year old even smart enough about personal finance and debt to understand the differences between the two?

I was a kid who took out a huge student loan to attend university. At the time, all I knew was that “college was mandatory” and I was encouraged to “study my passion”. Fortunately for me I’ve been able to monetize my passion... but at the time, I had no concept of how much money I’d be needing, or how interest stacks debt on top of debt, or how it would affect my credit when I wanted to buy a house at the age of 30, because no one told me these things and with a verbal agreement my parents co-signed the loan (I never signed a paper myself) for me and now I have this baggage for probably a few more decades.

It’s almost impossible to expect an 18 year old in today’s American society to fully understand the crippling punishment of six figure debt and its long term effects on your life. When you have 1 year to figure it out, and the choices are “go to college” or “be a failure” then there is only one way forward — isn’t there? I feel so badly for people in my situation that aren’t working at tech industry wages... and there are many.

pbreit4• 7 years ago

College presumably increases the borrowers earning potential. Not so, a house.

Average student debt load I believe is much less than $100k.

5% interest accrues very modestly.

The bankruptcy thing is irrelevant to this discussion.

jshc• 7 years ago

Any idea why college education is so expensive? here's just my cynic view from personal experience but I don't have enough data to back it. 1. some professors in some public state schools can get paid a ridiculous amount of salary 2. The administration is inefficient and bureaucratic.

BurningFrog2• 7 years ago

One theory is that it's mainly the strongly subsidized student loans:

https://reason.com/2015/12/21/new-study-the-main-thing-makin...

lotsofpulp3• 7 years ago

It’s the only correct and obvious answer. Things don’t get expensive unless the purchasers have the money to pay for it. Considering the net worth of most US families, who struggle to get a loan for a house worth a few hundred thousand dollars, the only way they’re getting tens and hundreds of thousands for college is due to taxpayer funded loans.

cheerlessbog• 7 years ago

Absurd level of non curricular services. Stadia, prestige buildings, lazy rivers... When I went to college in the 90's we organized our own sports and the college handled the educating.

lotsofpulp3• 7 years ago

Price is where supply curve meets demand curve. Demand curve is extremely far to the right due to everyone believing college will land them better, whiter collar prospects than otherwise available to them.

Also, it’s a very conspicuous social status marker and greatly contributes to the network of people that you have for the rest of your life. Not that it’s worth it for most colleges, but people believe, and no one likes to make less than rosy assumptions about themselves or their child.

Couple this extreme demand with an unlimited source of money, e.g. taxpayer funded student loans. Now a college can state whatever price they want, and the buy will be able to pay it! All they have to do is apply for a loan they are guaranteed to be approved for, and many times the parents are on the hook as well due to co-signing in the case of private student loans.

Not a single person does any cash flow modeling during this business of borrowing tens and hundreds of thousands of dollars on an unproven adolescent. Imagine a lender’s requirements for any other scenario where this much money is borrowed. All because it’s all taxpayer guaranteed.

mrep2• 7 years ago

It also allows them to price discriminate against rich parents to get them to pay more, and then they can subsidize kids from less wealthy backgrounds with scholarships. This works pretty well as a progressive system most of the time but there are plenty of stories of kids who have a rich parent or two who won't help their kid out at all and then the kid gets screwed with high tuition costs even though they have to pay for it all.

alecst• 7 years ago

Speaking just about the UCs, I remember seeing in a powerpoint that the price of tuition remained roughly the same over the last few decades, but since the tax dollars per student were going down, students were left picking up the difference. I didn't know why tax money was on the decline.

This powerpoint was on one of the public UCLA websites, but I don't remember which one.

platform2• 7 years ago

list of companies in Vista's portfolio (if anyone is interested)

https://www.vistaequitypartners.com/companies/

I though of them as private equity firm, more than an VC. but could be totally wrong...

mdturnerphys• 7 years ago

I'm reminded of this: https://en.wikipedia.org/wiki/Parable_of_the_Workers_in_the_...

tehjoker• 7 years ago

Nice of him, but college should just be free. Charity cannot build a decent society, only a determined society can... one that prevents the creation of billionaires in the first place.

If the dominant ladder to the middle class will place those who take it in indentured servitude, you're not building a great society.

httpsterio• 7 years ago

Scott's tod... Wait sorry, Smith's kids.

Billionaire Robert F. Smith pledges to pay Morehouse 2019 grads’ student loans

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