Alexander Conyers became acting president at South Carolina State University on July 13. Two days later, the public historically Black university announced it would use federal relief funding to clear $9.8 million in debt that around 2,500 students owed to the university.

Most of the students enrolled at South Carolina State are financially vulnerable and might not be able to continue attending college if they can't pay money they owe, Conyers said. More than 80% of first-time, full-time undergraduates at the university receive federal Pell grants, according to federal data. Pell eligibility is widely considered a proxy for low-income status. 

"Every day that we waited, we lost chances of getting students back, at least for the fall," Conyers said. "Every day that we waited was another student, another family wondering, 'How are we going to get out from under this debt?'" 

South Carolina State is far from the only college to announce debt forgiveness efforts in recent months. A steady stream of announcements this spring grew into a deluge by the end of July.

Early on, many of those making announcements were historically Black colleges. That includes Delaware State University, which announced in May that it would cancel as much as $731,000 in student debt for recent graduates.

But other institutions — often regional public universities and community colleges that enroll significant numbers of low-income students — have jumped in with their own debt jubilees. Higher education systems recently forgave enormous sums: $17 million for more than 18,000 current and former students of the Connecticut State Colleges and Universities system and as much as $125 million for 50,000-plus City University of New York students.

The details of each institution's forgiveness programs vary. But the institutions announcing forgiveness generally aren't wealthy, and neither are most of their students. They primarily serve low-income students and those underrepresented in higher education.

Usually, colleges are funding their debt forgiveness with federal dollars targeted at students who suffered financial hardships because of the pandemic. They wipe away balances students owed to their colleges, but they do not clear money owed on private or federal loans.

Though forgiveness programs have been presented as relief for students, they benefit colleges, too. Students have a better chance of staying enrolled, which can improve key institutional metrics like graduation rates and tuition revenue. And although it might seem paradoxical, forgiving debt in a certain way at this moment in time means colleges get paid money owed to them that they might otherwise never see.

That's because colleges rarely end up collecting the full amount owed on the types of balances being forgiven. By dedicating available federal money toward forgiving — and repaying — these balances now, colleges get an immediate cash infusion and clear bad debt off their books.

"To eliminate the accounts receivable on some of this is huge for anyone, but certainly for smaller, highly tuition-dependent institutions," said Jim Hundrieser, vice president for consulting and business development at the National Association of College and University Business Officers. "Even carrying $1 million or $2 million annually of outstanding debt is huge for them."

Urged on by federal guidance

Federal legislation passed in March, the American Rescue Plan, paved the way for colleges to use federal relief money to pay for debt forgiveness. Before the American Rescue Plan and guidance documents that followed it, colleges couldn't use HEERF money to write off balances, according to Sue Menditto, senior director of accounting policy at NACUBO.

For colleges, the legislation set up a third round of coronavirus relief money known as the Higher Education Emergency Relief Fund, or HEERF III. Like two rounds of funding before it, HEERF III uses a formula to allocate money to the country's colleges and universities. It breaks those allocations into a student aid portion and an institutional portion. Colleges have discretion over how they spend each pot of money, within certain limits.

After lawmakers passed the legislation, the U.S. Department of Education issued new details about how institutions can spend HEERF money. Then the agency in May explicitly urged colleges to discharge student debt and unpaid balances — and use HEERF institutional funding to reimburse themselves.

In the guidance, the department gave examples of who this could help: a student who had completed a degree but couldn't obtain an official transcript until paying off debt, a student who couldn't enroll next term because of an unpaid balance, and a student who couldn't get a transcript to transfer to another institution until squaring up on unpaid balances.

Institutions aren't allowed to use the federal relief funds for marketing and recruitment efforts, like commercial advertising or recruitment services. But federal guidance says that "efforts to engage or reengage students who would otherwise be at risk of not completing their college degrees as a result of coronavirus" are allowed. It specifically points to paying off debt students owe to colleges.

Colleges have two options for structuring forgiveness programs, according to Education Department documents: They can provide emergency financial grants to student accounts if a student gives written consent. Or they can discharge the student's balance and count it as lost revenue — then reimburse themselves through the federal grants.

Many colleges are finding the second option is a relatively easy way to wipe away student balances in large numbers. Instead of tracking down students to ask for permission, institutions can run batches through a computer system and zero them out.

Support from the business office

It's a form of debt forgiveness that chief financial officers can get behind. 

Ben Barnes is the CFO of the Connecticut State Colleges and Universities system, which spans four state universities, 12 community colleges and an online college geared toward degree completion. Before the pandemic, the system started work on a controversial merger plan to address financial pressures. Then enrollment plunged amid the health crisis, with the system's community colleges hit particularly hard.

Falling enrollment translates into lost revenue as tuition and federal financial aid dollars follow students. And the students who are enrolled can struggle to pay balances amid economic downturns.

At the end of each fiscal year, the system essentially writes down unpaid student debt that's more than a year old, Barnes said. That's because such debt is historically paid off at very low rates.

Normally, the system writes off about $2 million each year. When the college's fiscal year was ending this June, officials were going to have to triple that write-down to $6 million. They estimated write-downs totaling $10 million next summer.

Forgiving student debt and repaying the sums lost with federal money provides a financial bridge of sorts. It's an infusion helping the system's cash flow even as it can encourage more students to stay enrolled.

In other words, the financial incentives were aligned with the system's mission of educating students, Barnes said.

"We're trying to shore up our finances in the short run while also doing everything we can to shore up our enrollment," Barnes said. "We see this as very positive to students."

'Our business is about helping students'

Colleges sometimes targeted their debt forgiveness efforts to specific student groups. Shaw University, a private HBCU in North Carolina, experienced a high demand for summer classes this year. It forgave $1.2 million in summer class balances for more than 230 students, according to its CFO, David Byrd.

Students sometimes struggled in classes last year because of the pandemic, Byrd said. That was especially true for first-year students, who unexpectedly finished their high school careers studying at home only to enroll in college and again face classes on a screen.

Helping students in summer classes was a way to keep those first-year students from falling behind in their studies, Byrd said. Shaw also used federal money to cancel balances for seniors who were graduating, he said.

"For us it was, 'Get students graduated, out the door and in their careers, and help our students keep on track,'" he said.

Northern Kentucky University in July announced it was eliminating $600,000 in student debt, zeroing out balances for degree-seeking students from the spring 2020 through spring 2021 terms. About eight in 10 students affected are undergraduates, more than half are Pell eligible and almost two-thirds come from within Kentucky, said the university's president, Ashish Vaidya.

The move aligns with the four-year university's focus on benefitting its home region. Students who graduate from Northern Kentucky go back to work in the area, Vaidya said. University leaders wanted students to notice the forgiveness program as soon as possible to keep that pipeline moving. They worried students were not enrolling in the fall — that they were standing on the sidelines — because of unpaid balances.

"Let's get them off the sidelines, and then we can talk about other kinds of student support services," Vaidya said.

With so many colleges issuing balance discharges, it's worth asking whether leaders felt they had to announce forgiveness for their own students for fear of losing enrollment to competitors. But that's often not the case.

Patricia McGuire, president of Trinity Washington University, worries that students would drop out of higher education entirely without forgiveness. Trinity Washington, a Roman Catholic institution in the nation's capital, primarily serves low-income women of color from the area, McGuire said. They're underserved by higher education. If unpaid balances push them out of Trinity, they might turn to low-wage jobs and miss the opportunity to earn credentials that can boost their career trajectories.

"If it gets too hard, they are just going to go back to work and forget about college," McGuire said. "We are competing with the students' urge to stop out of college entirely and keep working."

Trinity Washington used American Rescue Plan funding to pay off $2.3 million worth of balances for 535 undergraduates. Doing so would have been a financial hurdle without the federal money, McGuire said.

When deciding how to spend the federal dollars, university leaders faced competing needs. They used some funding from the first round of federal relief to upgrade servers for online education and to purchase laptops for students. They paid faculty members to learn about teaching online. 

The institution could have continued spending on technology or other priorities, McGuire said. It opted not to do that.

"Our business is about helping students," McGuire said. "We can still figure out how to buy other stuff."