Billionaire businessman Robert F. Smith unleashed waves of joy at Morehouse College’s graduation ceremonies on Sunday, telling the school’s 396 newest graduates he would pay all their student loans.
“This is my class, 2019,” said Smith, the CEO of Vista Equity Partners as he received an honorary degree recipient at the Atlanta, Ga. college. “And my family is making a grant to eliminate their student loans.”
Shedding debt doesn’t takes a weight off the mind that clears up cognitive functioning, lessens anxiety and improves impulse control.
The jubilant scene — wide eyes, dropped jaws and applause that only got louder — are a helpful visual for recent study on what debt relief does to someone’s state of mind.
Getting rid of debt takes a weight off the mind that clears up cognitive functioning, lessens anxiety and improves impulse control, the study found.
The findings come from researchers at the National University of Singapore’s Social Service Research Centre, who studied almost 200 low-income people who unexpectedly had portions of their long-running mortgage, utility and municipal debts paid down by a charity. The study was published in the Proceedings of the National Academy of Sciences of the United States of America, a peer-reviewed scientific journal.
Researchers tested participants before and after their windfalls on their ability to spot matches and mismatches. The recipients were also tested for generalized anxiety disorder and their ability to make more beneficial financial decisions.
The study found:
• Average error rates in the cognitive function tests fell to 4% after the debt was paid down, compared to a 17% error rate beforehand.
• The proportion of participants showing generalized anxiety disorders went from 78% to 53% after the debt relief.
• Numbers of people showing so-called “present bias,” which favors instant gratification, dropped to 33% from 44%, a sign that their impulse control had improved.
‘Because debt impairs psychological functioning and decision-making, it would be extremely challenging for even the motivated and talented to escape poverty.’
The university’s Dr. Ong Qiyan said the findings showed the costs of being poor that aren’t measured on a balance sheet. “Our study shows that because debt impairs psychological functioning and decision-making, it would be extremely challenging for even the motivated and talented to escape poverty,” she said.
Of course,the experiment played out on the other side of the globe and involved a very small number of people.
The surprise pledge at Morehouse College, a historically black college founded in 1867, could be reportedly worth around $40 million, according to The Wall Street Journal.
Many Americans are well-acquainted with the stress that financial uncertainty can create. As the nation faces $1.5 trillion in outstanding student debt, a third of students in a survey last year said their student loan bills were a major source of stress. One man said he and his wife would cry the day they paid their last student loan bill. Debt can also affect your dating prospects. Three quarters of people in one survey said credit-card debts would be a turn-off in a potential mate.
At Morehouse College, graduates leave the school with an average of $35,000 to $40,000. President David Thomas told the paper Smith’s pledge was “a liberation gift.”
The findings from Singapore are in line with previous research in the U.S. on the psychological toll of living in poverty. When people live in “chronic scarcity” — meaning they lack sufficient money, housing and food to thrive — their brains become overtaxed because they’re coping with emergency after emergency, research by the nonprofit consulting firm ideas42 found.
That in turn can diminish self-control and harm people’s ability “to evaluate options and make high-quality decisions,” wrote ideas42. “In short, scarcity makes us less insightful, less forward-thinking, and less controlled,” the study concluded.
Researchers said the Singapore study was another look at so-called “bandwidth taxes,” which are part of the reason some people stayed mired in poverty. “The demands of daily life under scarcity create ‘bandwidth taxes’ that sap mental resources, impairing cognitive ability and causing counterproductive behavior which perpetuates poverty,” the researchers wrote.
One way to less the bandwidth taxes: Consolidate debt to simplify the pay-off experience, researchers suggested.
The commencement scene adds onto America’s own stories about overjoyed debtors who say they have a whole new view of life after their creditors were suddenly satisfied.
Newly-minted Morehouse College graduate Shawn Swinton, 22, of Kingstree, S.C., told The Wall Street Journal he was “still in disbelief.”
Swinton said he wasn’t sure he heard Smith accurately. When he accepted his degree, Swinton shook Smith’s hand and asked if he really meant it. “He told me, ‘Go out into the world and do things. Don’t worry about your debts,’” Mr. Swinton said.
He called the gift was “a tremendous blessing.”
(This story was originally published on March 2, 2019 and was updated on May 20, 2019.)
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