Robert F Smith talks about debt in Davos after loan clearance at Morehouse
In May 2019Robert F. Smith, founder and CEO of private equity firm Vista Equity Partners, delivered a keynote address to the class at Morehouse College. Next, the billionaire announced that he and his family would repay some 400 student loans for senior graduates – as well as loans taken out by parents and guardians of students.
The total donation of approximately $ 34 millions stirred up crowds and sparked a conversation about student debt, college affordability, and historically black colleges and universities like Morehouse.
At the 50th World Economic Forum in Davos, Switzerland, Smith spoke to CNBC about the economic and philosophical principles behind his decision.
“Capitalism is still the most efficient system on the planet for uplifting humanity in general,” he said. “But of course, in general we go up, but we have individual pockets that don’t necessarily participate. African Americans have traditionally not participated,” he said, citing the Homestead Act, the Southern Homestead. Act and redlining as examples of how African Americans have been prevented from earning generational wealth through land ownership.
Student debt, Smith says, likely would have forced Morehouse graduates to delay buying a home and participating in this wealth-building scheme.
Indeed, search found that student debt is forcing borrowers to delay buying a home. A 2019 investigation by TD Bank of more than 1,000 Americans between the ages of 18 and 39 who have paid off or are currently paying off student debt, found that 36% of them say they delayed buying a home because of their student debts.
Marco Di Maggio, professor at Harvard Business School, said Smith’s generosity will have significant financial implications for Morehouse students. He cited his own research that followed 10,000 people whose private student loans were canceled and found that borrowers had increased their salaries by $ 4,000 over three years and had less debt overall after they had done so. no longer had to repay their student loans.
But beyond that economic logistics, Smith said his decision ultimately came from his personal philosophy on freedom.
“All the inspiration really comes from an ideological stance around how you liberate the human mind. I don’t think there is anything more beautiful than the liberated human mind,” he said. he said, wondering, “What is a good way to free 400 spirits 400 years after 1619?” in reference to the 400th anniversary of the arrival of the first African slave in America.
Smith said he was overwhelmed by the response he received from students and their families after his donation. “It was one of the most beautiful expressions I have ever seen of the human spirit, released en masse,” Smith recalls. “It was wonderful.”
But on the proposals put forward by politicians for the government to write off student debt, Smith said the subject is “complicated.”
“There are people who have been in college debt for 20 years, and if you forgive the past, what about the future? he said.
Smith revealed he was working on an as yet unannounced initiative with former Internal Revenue Service commissioner Fred T. Goldberg to eliminate the burden of student debt for all African Americans studying science, technology, engineering, and math in HBCUs in the future – but not helping those who have gone into debt in the past.
“Is it fair to them? I don’t know,” Smith conceded. “So the government can do some things in the past. The question is what are we doing for the future? Or you can do things for the future, but what are you doing for the people in the past with this burden? “
Certainly, many politicians who have proposed student debt cancellation have suggested both debt cancellation for those who have been in debt in the past, as well as proposals to ensure that students do not. not go into debt in the future.
Senator Elizabeth Warren proposed to write off up to $ 50,000 in student loan debt for each borrower with a household income of less than $ 100,000. His plan also includes the elimination of tuition and fees at all public two- and four-year universities through a federal partnership with the states, with the goal of eliminating the need for Americans to incur student debt at the future.
Senator Bernie Sanders offered to cancel all student debts regardless of income or wealth and providing funds to “secure tuition and debt-free public colleges, universities, HBCUs, minority-serving institutions and trade schools.”
“The short answer is we have a problem,” Smith said. “The most important thing that uplifts people in their place in life is education, and we have to do it in an affordable and effective way.”
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