Billionaire Robert F. Smith stunned students at Morehouse College when he vowed to pay off the student loans of every member of the class of 2019.

“On behalf of the eight generations of my family that have been in this country, we’re gonna put a little fuel in your bus,” Smith, 56, founder of Vista Equity Partners, said Sunday during his commencement speech to the Atlanta college’s graduating class. “My family is going to create a grant to eliminate your student loans,” Smith added, according to a Twitter post by Morehouse.

Almost three-fourths of students use federal loans at the historically black college, which has about 2,100 male undergrads, according to Education Department data. With US$1.6 trillion in outstanding student debt, the issue is often mentioned during commencements, in addresses and decorated on graduation caps.

The typical debt for the 73 per cent of Morehouse undergraduates who take out federal loans and complete college is US$26,000, according to government data. That doesn’t include private lending or federal loans made to their parents. The school told the Atlanta Journal-Constitution it will cost an estimated US$40 million to retire the debt of the graduating class, which totals about 400 students.

Smith hasn’t clarified how the gift will be structured or the mechanics of how it will be used to pay off the students’ debt. A spokeswoman for the college didn’t have an immediate answer on how the payback would work, while a spokesman for Smith didn’t immediately respond to a request for comment.

One way would be for Smith to give a grant to the school, whose financial aid office keeps track of federal loans, said Ben Miller, a former Education Department staff member who is now vice president for post-secondary education at American Progress, a left-leaning think tank. It’s possible the financial aid office may not have information about private loans, he said, and warned that some debt forgiveness programs have resulted in tax bills for recipients.

“It is an amazing and generous surprise that should be applauded,” Miller said. “But instead of relying on one-off acts of generosity, Congress should raise taxes on the ultra-wealthy to fund college affordability and other key social supports.”

Federal student loans are the only consumer debt segment with continuous cumulative growth since the Great Recession. As the costs of tuition continue to escalate, the result is a widening default crisis that’s causing concern for Fed Chairman Jerome Powell. There was US$1.6 trillion in outstanding debt through the first quarter of 2019, while delinquent U.S. student loans reached a record US$166 billion at the end of 2018.

Tuition and fees at Morehouse are about US$27,600 for the current year, according to federal data. That doesn’t include costs such as room and board, books or transportation.

Smith, the richest black person in the U.S. with a net worth of US$4.5 billion on the Bloomberg Billionaires Index, had already announced a US$1.5 million gift to Morehouse.

Students cheered at the news that he was also relieving the class of 2019’s college debts.

“If I could do a backflip I would. I am deeply ecstatic,” Elijah Dormeus, a business administration major who’s graduating with US$90,000 in student loans, told the Journal-Constitution.

Smith is the founder and chief executive officer of Vista Equity Partners, a private equity firm with US$56 billion under management. Its holdings include workflow manager Autotask and ticket marketplace Vivid Seats. Smith graduated from Cornell University and Columbia Business School.

He joined Goldman Sachs Group Inc. as a tech investment banker in 1994, working in New York and then San Francisco before leaving to start Vista in 2000, which focuses on the enterprise software sector. He’s been chairman of Carnegie Hall since 2016.

Smith signed the Giving Pledge in 2017, promising to invest half his net worth during his lifetime toward protecting the environment and supporting equality.

“Potential is no guarantee of progress,” he wrote in his 2017 letter. “We will only grasp the staggering potential of our time if we create onramps that empower ALL people to participate, regardless of background, country of origin, religious practice, gender, or color of skin.”

Morehouse’s endowment is US$145 million, according to the most recent data from the National Association of College and University Business Officers. Atlanta-based Emory University’s endowment is US$7.3 billion.

--With assistance from Josh Saul and Tom Metcalf.