Robert F. Smith, courtesy of PE News

Robert F. Smith is a man of outreach and of action. He made good on his pledge to pay off the student loan debt of Morehouse College’s whole Class of 2019. He is opening up a school in Denver modeled around HBCU principles. Read the details from Forbes on how the finance executive now plans to relieve even more HBCU students of student loan debt in a new program.

Student Loans

The latest student loan update on Capitol Hill is shaping up like this: many in Congress are calling for $2,000 stimulus checks, which may be bad news for student loan forgiveness. The latest stimulus included limited student loan relief for student loan borrowers. It’s unclear when, or if, you’ll get student loan cancellation. However, none of this has deterred Smith from finding innovative ways to help address student loan repayment. Smith, the CEO of Vista Equity, followed through on his pledge to pay off $34 million of student loans for approximately 400 students who graduated Morehouse College in 2019. Now, Smith wants to expand his student loan repayment effort to help students at Historically Black Colleges and Universities (HBCU’s) through the non-profit organization, the Student Freedom Initiative, which helps provide financial and career assistance for HCBU students. 

As part of this effort, which Smith help fund with a $50 million contribution, the Student Freedom Initiative (SFI) is offering an innovative alternative to traditional student loans. Here’s how it works:

Are you eligible?

  • Rising college juniors and seniors at eligible HBCU’s can participate. 
  • This financing option is available to student after they borrow the maximum amount of federal subsidized student loans, federal unsubsidized student loans, grants and scholarships.
  • The program is initially available at nine HBCU’s, and is expected to grow over time to additional HBCU’s and Minority-Serving Institutions (MSI’s).

How much can you borrow?

  • Students can borrow up to $20,000 per year
Robert F. Smith, courtesy of

How does student loan repayment work?

  • This is an income-based student loan alternative.
  • For every $10,000 of income that a borrower earns after graduation for a certain period of time, borrowers agree to pay 2.5% of their salary each month. 
  • If you earn less than $30,000 a year, you don’t owe a student loan payment.
  • For example, if your monthly income is $12,000 and you borrowed $40,000, then you could owe 10% of your monthly income, or $1,200, as your monthly repayment.
  • Your monthly payment is returned to SFI (not your college or a lender), which will use the proceeds to help future borrowers fund their education.

Deferment and Discharge

  • Borrowers can defer up to 12 monthly payments for any reason (financial hardship or otherwise)
  • Borrowers can discharge their payment obligations after 20 years, or in bankruptcy, permanently disability or death.

Next Steps: Student Loans

While traditional student loans have an interest rate, this student loan alternative does not. While some features are similar to an income share agreement (another income-based alternative to traditional student loans), SFI wants to limit the repayment amount based on a multiple of your income. The goal is to make this alternative income-based repayment lower than the cost of Parent PLUS Loans, which parents borrow to fund their dependent child’s education. Parent PLUS Loans typically can have higher interest rates than federal student loans and private student loans. While parents can refinance Parent PLUS Loans, federal income-driven repayment plans are limited for parents who are struggling to repay Parent PLUS Loans. Today, there are more than 3 million Parent PLUS Loan borrowers who collectively owe approximately $90 billion. Many of these borrowers are seniors or retirees who have limited income to pay off Parent PLUS Loans. SFI wants to create a financial product to help alleviate this burden.

What is the future of student loan repayment? While income share agreements are available at more than 50 colleges and universities, income-based alternatives to student loans have not gained widespread support in Congress. Therefore, don’t expect student loans to be fully replaced by alternative lending options based on income anytime soon. Congress is also not consider income share agreement as an alternative to cancel student loans. That said, President-Elect Joe Biden wants to reform income-driven repayment plans for federal student loans. As part of his student loan plan, among other proposals, Biden would make enrollment automatic, student loan forgiveness tax-free and lower the percentage of income required for monthly student loan payments for millions of student loan borrowers.