When billionaire investor Robert F. Smith delivered the commencement address at Morehouse College in Atlanta and promised to pay off the student loans of all Class of 2019 graduates, the news went viral. As students celebrated, financial aid administrators were left to manage the logistics. Higher ed administrators across the country, meanwhile, are imagining what such a gift would mean for their institutions.
“It’s an exciting time,” says Kristen Gast, director of financial aid at Southern Oregon University, who has been following the Morehouse story closely. “The students are graduating with no debt and are able to plan their lives without the burden of $40,000 [in student loans]. But at the same time, the financial aid office has to know where to direct the funds, how to get them to the students, and how to communicate what it means to have their loans paid off.”
“That probably creates a lot of questions and concern and anxiety about how it is going to be administered,” she adds.
Gast expects that staff in the Morehouse financial aid office have started pulling data to assess total student debt and to determine the value of the gift. Specifics, including whether Direct Plus Loans for parents and private loans will be included as part of the debt erasure, will also need to be decided.
Morehouse College declined interview requests, but provided a statement that said, in part: “Our Office of Business and Finance, as well as our Office of Enrollment Management, have been working diligently to calculate the student loan debt and other details of this gift.”
Releasing the funds
Deciding how to release the funds is surely another big to-do item.
Gast suggests that they might issue a scholarship to each student in an amount that reflects their total debt.
Karen McCarthy, director of policy analysis for the National Association of Student Financial Aid Administrators (NASFAA), suspects Morehouse might act as a pass-through entity that transfers the funds between the donor and student loan servicers.
Privacy issues would prevent the college from providing its donor with information about what each student owed. Also, says McCarthy, cutting checks for each student to pay off their own debt would be too risky.
Regardless of how Morehouse officials decide to administer the gift, the process could take weeks—or months—to complete.
“You really don’t have a good picture of what’s been borrowed until the end of the fiscal year in June when you reconcile with the Department of Education,” Gast says. She believes the loans could be repaid within the six-month grace period so they don’t need to begin making official payments with principal plus interest. “But it might be a stretch, especially for a smaller financial aid office.”
Responding to student questions
As Morehouse works to manage the logistics of such a significant (and unexpected) gift, staff in the financial aid office might also be devoting time to responding to inquiries from recent graduates eager to confirm their debt has been paid. The financial aid office might be dealing with complaints, too.
“Students drop out all the time [because they can’t afford to continue] and feel like there are no other options,” Gast says. “If the gift would’ve been alluded to earlier, it may have helped more students make it all the way across that stage.”