I'm sure that by now you've heard of the blessing that Morehouse's class of 2019 received at their graduation. During his commencement speech, billionaire Robert F. Smith announced that he would pay off the student loan debt for every person in the class. Hearing bruh casually announce it like he was picking up the dinner tab made me realize two things: 1) a billion dollars is more money than most people can fathom, and 2) in the grand scheme of things, I'm unfathomably broke (I'm not even sure if that makes sense, but it sounded perfect to describe my brokeness).
With roughly 400 students in the graduating class, this gift is estimated to cost Smith—who's worth around $5 billion—is $40 million. While it's dope as hell that he did this, the fact that 400 students have $40 million worth of student loan debt is a problem in and of itself and highlights a crisis we're currently facing in this country.
Student Loan Debt is a Crisis
Americans have over $1.5 trillion in student loan debt, and this number is growing faster than gentrification in Washington D.C. To the surprise of probably nobody except Fox News viewers, student loan debt disproportionately affects Black folks. Roughly 78% of Black students borrow federal loans for school, compared to approximately 58% of White students.
To add insult to injury, almost half of Black student will default on their loans. Once you default on a loan, your credit score drops like Sprint calls in a crowded area, and this leads to whole 'nother set of problems that I could write about all day. Long story short: it's a vicious cycle.
The Racial Wealth Gap and Student Loan Debt
According to a study titled, "Racial Disparities in Student Debt and the Reproduction of the Fragile Black Middle Class," White students are able to pay their student loan debt down by 10% each year, while Black students are only able to pay it down by 4%. This means a loan for the same amount becomes more expensive for the Black student due to interest over time. Because of this, Black folks have 185% more student debt than White folks 15 years after graduating. That's almost double, dawg.
These problems are not only byproducts of the wealth gap, but the problem itself is contributing to the wealth gap. Believe it or not, the racial wealth gap is the largest among people with college degrees. It's also the fastest growing.
Being able to enter the real world post-graduation with money to invest and apply to other areas of life versus having to pay back Sallie Mae 'nem makes a world of difference.
Imagine the Possibilities
The average debt amongst the Morehouse graduates was $100,000. Imagine if they invest the money they would have been paying back in student loans into the stock market.
$100,000 in student loans with a 5% interest rate on a 30-year repayment plan equals monthly payments of more than $536. If you think this sounds horrible, just wait until you learn that over $93,000 of interest was paid on the $100,000 loan.
(Use this semi-unneeded pause to process how bizarre it is to pay back a loan with 93% interest. That's robbery in broad daylight with no mask on.)
If that same $536 was invested in the stock market each month with a yearly return of that same 5%, the investment total would be around $386,000 after taxes in 30 years. Use the stock market's historical yearly return rate (10%), and this investment becomes worth over $841,000.
That's going from $193,000 spent to $386,000 (or $841,000) gained—a $579,000 or $1.034 million swing, respectively.
Of course, this is an extreme example, and only sounds this good in situations like this when it fits my narrative, but you get the point. Even outside of investing, this is money that can be used for things like saving for a down payment on a house, creating an emergency fund, stacking bread to pursue entrepreneur ventures, or even helping mom dukes 'nem with bills.
The Final Word
This gift by Smith was about more than just paying off some debts. It was about putting a generation of young Black men in a position to break generational obstacles and create opportunities for their families and communities.
Smith instructed the class to "pay it forward" in his speech, and there's no doubt in my mind they'll do just that.
Although the underlying problem here is the student loan epidemic, and that absolutely should be addressed, I hope those who are in a position to make similar gestures as this, do so.