How student debt became a cause célèbre
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One of the dramatic philanthropic donations of last year: the pledge by Michael Bloomberg, former New York mayor, to give $1.8bn to Johns Hopkins University in Baltimore, putting his alma mater in the select club of fewer than 100 US colleges that promise to cover all the financial needs of the students they choose.
One of the dramatic philanthropic donations of this year: private equity baron Robert Smith announced in an address to the class of 2019 at Morehouse College in Atlanta that he would pay off every cent of their student loans.
These two acts reflect a shift in the debate on student debt in the US, from promises to help future generations of students to assisting those whose university days are over.
The billionaires’ increasing largesse mirrors politics. In 2016, Democratic presidential candidate Bernie Sanders made headlines by promising to make public colleges free, scrapping the escalating tuition fees that have driven students deeper into debt. Now, campaigning for 2020, he has added a new dimension to his plan: to wipe out the entire accumulated sum of student debt, totalling $1.5tn.
He wasn’t even the first Democratic candidate in the race to make this promise. Elizabeth Warren in part owes her frontrunner status to being the first to propose student debt forgiveness, to be paid for with a tax on the fortunes of the ultra-wealthy. Corporate America is in on the trend, as employers from Fidelity to PwC add student loan repayments to the benefits they offer staff.
Morehouse, which has been inundated with calls from philanthropists who wanted to follow Smith’s lead, has set up a fund to pay off the debts of past and future students. His gift, which he told the graduating class would “put some fuel in your bus”, is seen as unassailably worthy.
Student debt is weighing down a generation of American youngsters, making for a sluggish economy and damping entrepreneurialism. What’s more, the burden falls most heavily on African-American students, who tend to take on more debt, are more likely to drop out, earn less of a pay bump as a result of their degree, and end up defaulting at a much higher rate, according to a report by think-tanks Demos, The Century Foundation and the Roosevelt Institute. The gift from the richest African-American to the graduating class of a historically black college could not have been more appropriate.
After religious causes, education is the largest recipient of US philanthropic donations, with a total of $58.7bn in 2018, according to the annual Giving USA study, up from $40.9bn a decade ago. But where can ambitious philanthropists make the biggest impact? Is it better to tackle debt or reduce education bills in the first place? As S&P, the credit rating agency, said in a report on student debt forgiveness: “Problem solvers of the world will quickly point out that solutions that do not address the root cause of an issue will fail in solving the problem.”
The root cause, S&P pointed out, is that the cost of going to college in the US has been rising faster than wages, financial aid and just about everything else, and fewer than two-thirds of students starting a four-year degree graduate, often citing financial constraints. The reasons are controversial. Many argue that the very availability of debt funding and student aid allows universities to raise fees. Elite schools jack up spending on amenities as they compete for students. Meanwhile, public colleges have suffered from declining state funding.
Donations such as Bloomberg’s can allow colleges to close the widening gap between the cost of college and what a student and their family can afford or raise in government aid. Top universities already have huge endowments and scholarship programmes, so new philanthropists are likely to have a bigger impact at less well-off colleges.
Some of Bloomberg’s other charitable activities could serve as an example. His foundation has financed organisations that help low-income youngsters navigate the financial aid process and help universities search for applicants in communities they may not typically reach.
Coming from another angle, wealthy individuals could bankroll political campaigns for increased state funding, perhaps even for a wealth tax. (Some ultra-rich liberals, including members of the Disney and Pritzker families, did so in an open letter praising Warren’s policy.) Or they could press for government action to encourage colleges to curb tuition fees, by tying them to student outcomes.
Education has long been a favourite target for wealthy Americans’ philanthropy, but arguments over how to make the biggest impact are as heated as any political campaign.
Stephen is reading . . .
Talking To Strangers by Malcolm Gladwell. When I interviewed him in 2014, he suggested he might never write another book. “I don’t have an idea. You can’t just decide to write a book then figure out later what it’s about,” he told me. I’m glad he has at last. In an ever more divided society we need, as he says, “some soul-searching about how we approach and make sense of strangers”.
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